Credit cards are either your friend or your biggest enemy. On one side – people use these and get loads of perks. On the other side – people are drowning in debt. This is where balance transfer credit cards can come to rescue.
Balance transfer credit cards can become the best friend for those looking to clear credit card debt. You will need a solid plan and stick with this in order to reduce your debt to zero over time.
Below I will explain what exactly are balance transfer credit cards. There are some watch out to be aware off before you are getting yourself one of these.
what is a balance transfer card
Balance transfer credit cards are a special type of card that allows you to move your credit (money you owe) to a different lender. You can even move the balance of couple of cards on to one card.
You probably wonder – why would I want to move my credit balance from one bank to another? The answer is simple – balance credit cards offer you a period of time when you will not be charged any interest at all. This can become an incredible way to help you reduce and clear your outstanding balance.
These cards aren’t absolutely free. I will discuss the fees to be aware of below.
how do these cards work
The company that you take the balance transfer card with will pay off your old debt. Next, you will see the same amount appear on your new account. The biggest perk you get – a period of time when no interest needs to be paid.
The catch however is – the period of time where you have no interest to pay is limited. Often this varies between 18 and 36 months. Once the period has expired – you are back to paying interest on whatever the remaining balance is.
There is a further thing to be aware of – some companies might charge you a fee for transferring the balance. This would be a one off payment however you should account for this.
You can also use this card for your day to day purchases but this defeats the purpose of the card.
how to choose the best balance transfer card
There are a couple of points that you need to consider before getting yourself a balance transfer card:
- Check the balance transfer fees that you will be expected to pay. This will often be a percentage. Usually these range from 0% to 3%. You will also find that the cards that have a smaller balance transfer fee will offer the 0% interest period for a shorter period of time.
- Look for the interest free period to be long enough for your needs. Make sure that you understand how much you are able to pay monthly towards your credit balance. Make sure you repay as quick as you can but don’t stretch yourself too thin either.
- Check the odds of you getting the card. Some comparison web sites offer you pre-approval checks. This way you can now how likely it is for you to get approved for the card that you find suitable for your needs.
what are benefits of these cards
The clear and obvious benefit of these types of cards – you can pay your balance out without being charged the interest. And this can really be a massive saving which can help you reduce the balance even quicker.
Let’s imagine you found yourself in a really tight spot and have £5,000 balance on your card that you can’t afford to pay off in one go. This is a tricky and expensive place to be at.
If your credit card charges you 25% per annum – this is £1,250 per year… or just over £100 every single month in interest. This is money you would be paying and not getting anything in return for it.
What the balance transfer card can do for you – take the high interest rate away for a set period of time.
Now let’s imagine that the balance transfer card you get is 36 month which is the longest period these get offered for. You would have to pay just under £140 per month for the next 3 years and the balance would be fully cleared.
The craziest thing in the above example – the monthly payments you would need to make are very similar to the monthly interest you would have to pay in order to maintain the balance of your card at £5,000.
If you were to stay with your current credit card and pay it off that way – you would be looking at roughly £195 per month for 3 years. This would result in your paying extra £1,880 in interest over the life of this balance.
The amazing thing is – you could use the same £195 payment per month on your balance transfer card and pay the whole loan off in just over 2 years – a saving worth a whole year of your life.
what is the best balance transfer credit card
There is no easy answer to this question. This will all depend on your needs and ability to pay the balance back.
Some people might find cards with the smallest transfer fee work the best for them. Others might be alright to pay a fee in exchange for longer interest free period. This is so personal that giving the best card to you is truly a mission impossible.
There are however ways that you can go about finding the card that works the best for you. I would personally use one of the credit card comparison web sites for this task. You are able to set the search according to your needs and find what works the best for you.
summary
Balance transfer cards can be a saving tool for those struggling with outstanding credit card balance. These can literally shave off years from you paying back the card balance.
Once you pay the balance off – the key is not to find yourself in a similar situation ever again. Never spend money on things you can’t really afford. Especially when you have to pay ridiculously high interest for the privilege.
If you do however find yourself in a situation where you have a lot of debt – look for strategies and ways to help you clear this debt in the shortest possible period of time. Being debt and stress free will be the best feeling you would experience in a long time.
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