Credit card debt can be one of the most difficult forms of debt to get out of. Why? Well, because of the accrual of interest. When you’re dealing with a high-interest rate credit card, making the minimum payment each month might not be enough to put a dent in the principal balance. As such, it takes you longer to pay down the debt. The good news is that there are options that can help you get out of the “interest cycle” before it drains your pockets.
Balance Transfer Credit Cards
Balance transfer credit cards are essentially credit cards that allow you to transfer the balance from an older credit card account to the new one. While there is generally a small fee for making the transfer, many balance transfer cards offer lower interest rates. Some offer deals like 0% interest on your transfers for the first six months to a year.
This will essentially give you the time you need to knock those high balances down before the interest kicks in. If this sounds like something that could prove beneficial for you, it is highly recommended that you first check out a few reviews on cards that offer balance transfers so you can make an informed decision. Speaking of decisions, below are three common reasons to consider applying for one.
- You Want Lower Interest On Older Debt
When it comes to high-interest rates, going with a balance transfer card with zero interest is the obvious choice. You will essentially have a year or more to pay off the debt without having to pay for interest as well. Let’s say you have a balance of $3,000 and you have a total of $300 to dedicate towards it each month. With zero interest, you could pay your entire balance off in under a year.
- Improve Your Credit Score
If you’re trying to accomplish something that requires a decent credit score, then transferring your balance could be ideal. Since credit utilization is a significant part of factoring your credit score, moving your balance will keep the percentage of your available credit limit under the recommended 30%. Since your old card will be paid in full, this utilization percentage will drop to zero. Secondly, since you can now pay down your balance faster this will help to decrease the utilization percentage on your new card.
- Simplify Your Payments
When you have multiple credit card balances to pay off, it can often be taxing to try and pay the minimum balance as well as the interests on all of them. Consolidating your debts onto one card with zero interest allows you to simplify your debt repayment plans. You now have one creditor to pay monthly and one balance.
As with traditional credit cards, balance transfer cards are not to be opened without doing your due diligence. Research various creditors and the offers they provide. Be sure to check for transfer fees and read the fine print to determine when the low or no interest rate offer ends. Other than that, opening such an account can help you save money as you rebuild your credit history and improve your financial health.