What is a balance transfer?
A balance transfer is when you transfer credit card debt into another card with a lower interest rate, sometimes interest free, to save money.
How does it work?
A lot of people are being pounded with all the interest payments they make on their credit card debt, and a trick to ease the pain is to make sure the debt they accumulated can be transferred to another lender that would offer a better rate. For example, if credit card A had a balance of $10,000 with an interest rate of 20%, by selecting a credit card that offers balance transfers, you can transfer that debt of $10,000 to credit card B with an interest rate of 2.99% or even 0% (no interest). Credit card B would usually give you a check and you use that check to pay credit card A, hence transferring the debt. It could be done online as well.
How can it get me out of debt faster?
Using the example above, if you were to transfer the debt from credit card A to credit card B, you can literally save $4,000 dollars plus. The $4,000 you could have spent on interest payments could have helped pay down other debt faster and possibly even save money simultaneously.
Sounds too good to be true... What's the catch?
There's always a catch, isn't there? Well, yes and no. A balance transfer usually costs 3% of the balance upfront, so it's not really "0%," nonetheless, you can still save thousands by moving it into a different card that has a lower rate. Another thing about balance transfers are that it typically lasts for only 12 months, which may or may not be enough time. Even so, you are better off with this option. Lastly, because balance transfers are such a good deals for debtors, lenders usually offer them to people with higher than average credit scores.
Where can I get one of these?
Do your research on which banks offer balance transfer credit cards. Read the fine print. Find out:
* What is the interest rate? Is it 0%, 2.99%?
* What's the cost? It's called a balance transfer fee?
* How long is it for? Is it 8 months? 12 months?
Overall, balance transferring debt is a smart choice for those who know how to use. The ability to save money on interest payments as well as defer payment (just one month because you use the balance transfer check to make the pay off) can really help. Selecting the best balance transfer card is important as some banks offer lower rates at longer periods, lower fees to do so, etc.