What exactly is a balance transfer? Well, it is actually a concept: You get rid of existing credit card debt in a more manageable way by lowering the amount of interest your credit card balance incurs. When you do a balance transfer, you are essentially shifting your existing debt from one credit card to another that offers a lower interest rate, preferably 0%.
While balance transfer credit cards or low interest credit cards may be able to offer you temporary relief from sky high interest rates, your debt is still a debt and you have to pay down your debt no matter what. Think of balance transfer as a tool to help you better manage your existing balance; it does not make your debt magically vanish! Read on ahead as we at GET.com highlight the important things you should know about balance transfers.
1. You may or may not be approved for a balance transfer
This really depends on your credit history, credit score, credit limit and perhaps a host of other factors considered by the credit card company. It is up to your credit card issuer's discretion to approve you for a balance transfer.
2. A balance transfer fee exists
For those who do not already know, a balance transfer fee of 3-5% of the balance transfer amount, $5 minimum, typically applies when you do a balance transfer. Majority of balance transfer credit cards come with this fee.
3. There may be a limit to how much you can transfer
There may be a dollar limit on how much you can actually transfer to your new balance transfer credit card or low interest credit card. This means there is a possibility that part of your existing balance cannot be transferred.
If this is the case, whatever balance that's left on your original interest-incurring credit card will still be incurring high interest. It is best you tackle this portion of your debt as quickly as you possibly can just so you can get rid of debt faster.
4. Be committed to paying down your debt
Make it a point to make payments punctually before their due date every month. Needless to say, you have to be diligent and disciplined in paying the balance you've transferred over to your balance transfer credit card or low interest credit card - best if you can clear all your debt within the low interest or 0% interest promotion period.
Look out for terms like ‘0% introductory APR on balance transfers for the first X months from account opening'; ‘0% introductory APR on balance transfers for X months'; ‘ 0% introductory APR on balance transfers for X billing cycles' when you do your research. Be mindful of the ongoing APRs after the 0% introductory period, too!