Could a Balance Transfer Help You Crush Your Debt?
If you’re struggling with credit card debt, it could be time to try a new tactic to kick-start your progress. If you have the bandwidth to responsibly add a line of credit, consider opening a low-interest credit card and conducting a balance transfer. You can take advantage of lower introductory interest rates to put more funds toward your principal balance. Consolidating your number of credit card payments can help give you a head start on streamlining your funds to beat down debt.
In a balance transfer, you transfer the balances of each of your credit cards onto another credit card account. The other credit account typically promises low or zero interest on balance transfers for a specific period of time.
Do I Qualify For a Balance Transfer?
Before applying for a balance transfer, you’ll want to be sure you have decent-to-good credit, which could mean:
- Having a credit score of at least 675
- No late payments on your credit report in the last 12 months
- Debt-to-income ratio of less than 40%
You’ll also want to find a credit card that will give you a limit large enough to transfer all of your balances. You might be assessed a balance transfer fee for paying off the old credit cards with your new one. This typically ranges from 3% – 5% of the balance you’ve transferred and will add to the amount you’ll repay. The fee is money you could be putting toward your debt in the first place, so factor this in carefully.
Paying Off Your Balance Transfer
Find out how long your new interest rate will be in play and plan accordingly. At best, the card will have 0% interest on transferred balances for life. More commonly, though, it’s for a specific amount of time (like a year) and is valid only as long as you’re making payments on time. If you use your new card for purchases, be aware that your payments will be applied to the amount with the highest interest first. If you successfully pay off the balance according to the agreement, you won’t have to pay any interest.
What Do I Do With My Old Card?
What happens to the old card or cards you pay off? Should you close it down, leave a smaller balance on it and make payments, or use it for tiny purchases and always pay the balance off in full? Closing a card can reduce the average length of time you’ve had open credit accounts and reduce your overall available credit (increasing your credit usage ratio), which can significantly deflate your credit score. If the card you’re paying off is one of your oldest, it would benefit you to keep it open and set up an automatic payment for something you always budget for—like a utility payment. Then, set your bank account to pay the card in full every month.
A VISA balance transfer may be your answer to getting rid of higher interest rates. Y-12 FCU members can move your high-interest debt to Y-12 FCU, with no balance transfer fee, and lower their monthly payments! Click here to learn more.