As we wave goodbye to yesteryear and say hello to 2020, it’s time to get back on the right financial track. As many know, the new year means a new you, but does it also mean new debt? It doesn’t have to. In fact, it might just mean the opposite—wiping out debt altogether.
According to the Experian State of Credit Report, the average American owns more than three credit cards with an average outstanding balance of $6,354. This translates to hundreds of dollars of interest that could have stayed in the consumer’s pocket. It’s an issue that can start small with a few nights of shows or dinners around Rochester. But paying with plastic can add up fast. Just because you’ve racked up a high balance doesn’t mean that you have to pay interest right away. There are other options—and one of the best is a balance transfer.
What is a balance transfer?
A balance transfer is when your credit card balance from one card is transferred to another. Whether it’s a single card or multiple, a balance transfer consolidates your credit card balance. On the surface level, this doesn’t seem to make much sense, but when you dig a little deeper, you find out how it can help.
What are the advantages of a balance transfer?
First off, a balance transfer is a simple way to keep all of your outstanding balances, payments, and due dates together under one card. No need to keep track of messy schedules and scattered credit card balances when they’re all under one roof. Less is more, and credit cards are no exception.
Second, it’s not unusual to find a credit card that charges less interest than your previous cards. Some cards offer introductory rates as low as 0%. This offers a clear-cut way to save money immediately — less interest, more savings.
Third, credit cards often offer interest-free promotional periods. Many will give you up to a year of credit interest free. This gives you a 12-month window to catch up on your payments if used effectively. In this scenario, a little planning can go a long way in getting rid of credit card balances.
What are the disadvantages of a balance transfer?
The biggest drawback when it comes to balance transfers is the transfer fee. While ESL charges no fees1, most credit cards do. The going rate for a transfer fee is about 3% of your total balance. Although a balance transfer might be a good move, it can still cost you.
It’s also important to be aware of your promotional window. It’s nice to have a year of interest-free payments to tackle your credit card balances, but if you’re not proactive, that year can set you back even further than before once the window closes and the interest kicks back in.
Credit limits are another factor to think about. When transferring credit card balances, you can only transfer a balance up to the amount of the credit limit on the new card. Don’t expect to transfer a $9,000 balance to a card with a $5,000 limit.
When should I transfer?
Determining the timing for a balance transfer starts with whether or not you need to get rid of a credit card with high interest. If this is the case, it’s time to check your current credit score.
Before researching balance transfers, make sure you have a credit score in the mid- to upper-600’s at the minimum. Anything higher opens you up to almost any offer. Anything lower drastically decreases your chances for a good option.
With those two boxes checked, in the world of balance transfers, there’s no time like the present. The quicker you can get out of a stress inducing, high interest credit card, the better off you’ll be.
By taking inventory of your circumstances and doing your due diligence, getting a balance transfer could be exactly what you need to start chipping away at your credit card balances.
