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As of August 2021, the total amount of outstanding consumer revolving debt, including credit cards, was just over $1,001 billion. If you’re one of the many Americans struggling to pay down credit card debt, you might wonder how you can get ahead when your interest rates are high and the balance never seems to budge. One tip for paying down credit card debt faster is to use balance transfer cards. Find out how to do a balance transfer and get other tips for using these financial tools below.
Balance transfer cards are credit cards that include a balance transfer offer. That offer lets you move all or some of the balance from an existing card to a new one. Usually, the purpose of doing so is to reduce the interest rate you’re paying on the balance.
Balance transfer cards work by providing a mechanism for paying down one credit card balance with the credit limit of a different card. You may need to call your card’s customer service line to conduct the transfer. Some credit card companies provide you with paper checks for this purpose or offer a way to transfer balances online. Make sure you read all the fine print that comes with your card to understand which option is best for you.
People use balance transfer cards for a few reasons. The most common is that they want to pay down their debt faster. If the balance transfer credit card has a better interest rate than their existing card, transferring the balance to the new card can reduce the overall cost of the debt.
To understand this principle, consider the example below.
Another reason people might use balance transfer cards is to move their balance to a new bank. If you’re not satisfied with the customer service offered by your current credit card company, you might consider a balance transfer.
Using balance transfer credit cards correctly helps you get the most out of them. Here are some tips for maximizing those benefits.
Balance transfer cards aren’t always the best option. In some cases, they might end up costing you more in fees, for example. Avoid the mistakes below to take full advantage of balance transfer options.
Balance transfer offers are typically used by banks to entice new customers. Because of this, a bank usually won’t offer balance transfers with low introductory APR to existing account holders. And since the savings associated with those lower interest rates is the primary benefit of a card transfer, it doesn’t make sense to transfer your balances between cards with the same bank.
If you qualify for other balance transfer credit card offers, you can transfer part of the same balance again. This may be an option if you can’t pay your total balance off within the introductory APR period on the first balance transfer card. Moving the balance again can stretch out how long you have to pay.
However, you do have to be aware of the terms. Many balance transfers come with a 3% or higher balance transfer fee, for example. If you keep transferring the balance and paying that fee, are you really saving any money? Do the math so you understand where you stand before you transfer balances.
Like any form of credit, balance transfer credit cards are a financial tool. Use them responsibly and you can reap numerous benefits. If you think there’s room in your financial life for one of these tools, consider applying for a balance transfer card today.
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