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You’re in so much credit card debt that it feels nearly impossible to get out. You feel stuck — it’s tough to get ahead with such a high interest rate. So what can you do? One option to consider is a balance transfer.
A balance transfer is the process of transferring debt from one credit card to another credit card, usually to one with a lower interest rate. This can be a great option, but if you’re not careful or aware of the potential drawbacks, you could wind up with even more debt.
If you’re considering a balance transfer as part of your get-out-of-debt strategy, read on to learn the pros and cons.Learn more: What is a balance transfer?
Balance transfer pros
It can consolidate your payments
You may be able to combine multiple credit card balances by transferring them to a balance transfer card. Once you’ve consolidated your debt onto one card, you can focus on one payment with one due date, instead of making several payments each month and having to keep track of various due dates. This can make it easier to manage your payments.6 options to consolidate your credit card debt
You can save money on interest
A major benefit of doing a balance transfer is the potential to save money on interest. It’s common to see credit cards with APRs ranging from just under 14% all the way up to 24%.
Some balance transfer cards come with an introductory 0% APR for a set amount of time. That way the money you do put toward your debt is not just getting eaten up by interest, but instead paying down the principal balance.How to get out of credit card debt
Move your debt to a different credit card
You may feel stuck with your current credit cards, dealing with high interest rates and terms that don’t offer you much as a cardholder. Depending on the card you get approved for, you may be able to move your debt to a credit card that has a lower interest rate and more favorable terms. You may even be able to find a balance transfer card that offers perks that can earn you rewards. But you might want to wait until your transferred balance is paid off before you take on new credit card debt.
Balance transfer cons
You may have to pay a balance transfer fee
Most good things aren’t free, and that includes balance transfers. Many balance transfer credit cards will charge a balance transfer fee of 3% to 5% of the amount you transfer, usually with a minimum of $5 to $10.
Let’s say you transfer $5,000 and there’s a 3% balance transfer fee. You’ll end up paying a $150 fee just to do the transaction. Consider that added cost before you transfer your balance to make sure you’re still saving money.
The low interest rate doesn’t last forever
Balance transfer cards may offer a 0% intro APR for a specific amount of time. The promotional period can vary depending on the card, but you’ll see balance transfer cards out there with intro APR periods of anywhere from six months to 21 months.
That means if you’re using this card to pay off debt, you’ll want to be aware of when the promotional period ends and what the APR will be after that.
You could add to your debt
If you’re looking to do a balance transfer, you’re likely hoping to pay off debt and save money on interest. But if you haven’t addressed the root of the issue, having another credit card could easily lead to more debt.
If you don’t have a plan, you may end up racking up even more debt with the new credit card. Worse yet, you may not pay off your existing debt within the promotional period and end up just shuffling your debt around without actually saving money.
“Some balance transfer credit cards also offer a 0% APR on purchases for a period of time, such as 12 to 18 months. Don’t take the bait,” says Beverly Harzog, author and credit card expert for U.S. News & World Report. “One of the biggest mistakes consumers make with balance transfer cards is to use them for new purchases. You can end up in even more debt this way.”How to do a balance transfer in 6 steps
You may need healthy credit
In order to get approved for a balance transfer credit card, you typically need good credit scores to qualify. Your credit scores will also help determine if you are approved for the best APR.
A balance transfer credit card can be a useful tool to have in your arsenal if you’re looking for a new hack to pay off debt faster. If you get approved for a low interest rate and pay off your debt during the promotional period, you may be able to save money on interest and be debt-free sooner.
It’s important to do your research on the best balance transfer credit cards. It could also be a good idea to make sure you have addressed the reason behind your credit card debt before you apply for a new card.
Weigh these pros and cons carefully to help decide if a balance transfer credit card is a good option for your financial situation. If taking action makes sense for you, keep reading to learn how to do a balance transfer.