If you’ve got a big balance on a credit card with a high interest rate, transferring a balance to a card with a lower interest rate could make financial sense.
Why? Because you’ll pay less money on interest charges and more of each payment will be applied to your outstanding debt. However, there are several things you need to consider before you apply for a balance transfer credit card.
Start with a credit check
Before you start shopping for a new balance transfer credit card, check your credit score.
The best offers with rock-bottom introductory rates of 0% for a year or more are reserved for consumers with good credit.
If you have a credit score of 700 or higher, your good credit score should qualify you for a new credit card with a low APR.
Watch out for fees
As enticing as low rate balance transfer credit card offers may be, it’s important to factor in the cost of fees. You may pay a balance transfer fee of 2 to 5% on the balances you transfer to a low interest rate credit card.
On the other hand, some balance transfer cards may charge slightly higher introductory rates and no balance transfer fees. So do your research, read the fine print and weigh your options carefully.
Make good use of the teaser period
How long will the introductory or teaser rate on a balance transfer offer last? Is it six months, 12 months, 18 months? The months when you are paying little or no interest on your credit card balance are prime opportunities for paying down your debt.
So take a close look at your budget and apply as much extra money as you can to your outstanding credit card balance during the introductory period.
The ideal would be to pay off the full amount of your balance during the introductory period. If that’s out of reach, work out a pay-off plan that fits your budget. And stick with it until the debt is paid in full.