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Best Balance Transfer Credit Cards

Michelle Brooks

Michelle Brooks

Financial Advisor

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One of the primary reasons individuals get credit cards is for a ‘balance transfer’. A balance transfer is the process of transferring an existing balance on a current card (or cards) to a new credit card. There are two primary reasons for transferring a balance. Firstly, the new card may have a lower interest percentage which will save the cardholder money in the long-term. Secondly, the card may have an ‘interest free’ period which will result in no interest for an extended period of time. Thousands of Americans perform balance transfers every year in order to escape the clasps of high-interest credit card debt.

When cardholders get their first credit card they are often only able to sign up for cards with relatively high interest rates. This is because lenders see them as risky borrowers. On the other hand, this means that as a borrower you may rack up debt that then continues to expand because of interest rates that are much higher than normal. Transferring your current balance to another card can help alleviate the stress of accumulating interest. If you can be disciplined enough to take advantage of ‘interest free’ periods, this can be an extremely useful way to get out of debt.

This article will overview some of the things to look for in a good balance transfer credit card. In addition, it will outline some of the advantages and disadvantages of balance transfer credit cards.

America’s Growing Debt Problem

If you feel that you’ve gotten yourself into a position of having too much debt to pay off, you’re not alone. The United States has some of the highest personal debt rates in the world. A lot of this is a product of the financial crisis in 2007. Families were forced to take on extra household to debt to make their ends meet. Since 2007, wages in the United States have stagnated, which means that people haven’t been able to effectively pay off their debt. These interest rates have accumulated, causing massive liquidity problems for some Americans.

Balance transfer credit cards have provided a breath of fresh air for many American families. They’re one of the easiest ways to help get your financial profile back on track.

 

What to Look For

When deciding on the best balance transfer credit card there are three primary things to look for: APR (interest rate), ‘interest free’ period, and balance transfer fee.

  • APR (Interest Rate) – This is one of the first things you should look at when deciding on a balance transfer card. Many people currently pay over 20% interest on their credit card balances. A good card to balance transfer to is one that has an interest rate in between 10-15%. You may also look to find a card that has a grace period on interest on new purchases. This way if you continue to use the card, you won’t rack up interest on your new purchases for a few months.
  • ‘Interest Free’ Period – An ‘interest free’ period pertains to the balance that you have transferred from an old card. For example, you may currently have $10,000 in credit card debt on a credit account for which you pay 24% interest. If you transfer this to a card with an ‘interest free’ period, you may have a number of months where you pay no interest at all, and therefore may be able to pay off a sizeable chunk of your debt quickly. Good ‘interest free’ periods are normally anything between 12 and 18 months.
  • Balance Transfer Fee – Most cards will charge you a one-time fee to transfer over your balance from another card. Good balance transfer cards will have a one-time fee between 1-3% — don’t accept anything higher.
  • Other Fees – You should always be as aware as possible of additional fees that might be associated with your credit card. For example, some credit cards have fees for a variety of other reasons. If you decide to travel with your card a lot, make sure that there are minimal travel transaction costs. This can save you a lot of money in the long run.

You should also factor in annual fees. Plenty of reputable balance transfer cards in the U.S. don’t charge annual fees — it’s a good way to help pay off your debt quicker.

The Advantages

The primary advantages in balance transfer cards is the elimination of debt. It allows you to have breathing room that you may not have previously been afforded. Balance transfer cards also put you in a position to avoid debt in the long-term, as many of them have low interest rates. Some additional advantages are provided below.

  • Long Term Credit Improvement – While applying for a new credit card damages your credit score in the short-term, it can help you improve your credit score in the long-term. This is because if you are able to pay off your debt or reduce you balance substantially, your credit score will largely benefit. It will also free you up to make better financial decisions in the future. If creditors see that you have made solid efforts to pay down your debt, this can also look good for you when applying for things such as a mortgage.
  • Saving Money Elsewhere – If you manage to use a balance transfer credit card to pay down your debt successfully, you’ll find that you are open to having other costs in your life reduced. For example, some insurance companies will offer you better insurance premiums if you have a higher credit score.

 

The Disadvantages

The disadvantages of a balance transfer card come in two forms: credit score reduction and lack of benefits. In terms of credit score reduction, this isn’t always the case. But applying for new credit cards does impact your score, and if you have to apply for multiple, it can put a serious dent in your history for the near future. In terms of the lack of benefits – most balance transfer cards don’t offer rewards or points. This may not be an issue for you, but it means you don’t get any benefits from spending money on your card. Some additional disadvantages are outlined below.

  • No Access to Cash – Getting cash on a balance transfer card won’t be easy to do. This type of withdrawal will not factor into your interest free period. If you do decide to withdraw cash on your credit card, you will be immediately charged a fee and high interest rate on the amount that you’ve withdrawn. If you’re finding you need access to cash to help satisfy other debts, then you’ll need to try and find another form of finance on top of your balance transfer credit card.
  • Interest Free Period Runs Out – All good things come to an end, this is also true for the interest free period on your credit card. If you haven’t managed to pay off your debt by the time the interest free period is over, then you will begin accumulating debt again. Regardless, hopefully you have managed to pay off a significant portion of your debt, which will reduce your interest obligations moving forward.

 

The Revolving Credit Trap

Credit cards seem like a great way to get access to additional capital when you’re running low on cash. They’re typically easier to apply for than traditional loans, and they also manage to allow you to pay for things online and in person through an easy-to-use card facility. But because credit cards are unsecured debt, they have extremely high interest rates. This is why so may people get caught in the revolving credit trap. Unlike term loans, you can carry debt on your credit card for decades. Not having fixed payments often results in people neglecting to pay down their card balances. This can have catastrophic financial repercussions.

If you manage to escape this trap by using balance transfer card, you should try to begin approaching your credit card like a term loan – make fixed payments with the end goal of eliminating your debt completely. Try to stop spending on your credit card while it is in its interest-free period, otherwise you might not get anywhere.

 

Applying for a Balance Transfer Card

Applying for a balance transfer card has never been easier. You no longer have to walk into a bank and use paper applications. This speeds up the process immensely. You can apply for a credit card in about ten minutes online.

This has also helped secure customer data. Paper credit card applications leave your important personal information – such as your Social Security Number – open to being stolen by a staff member or someone else. Digital applications reduce the exposure your personal information has to fraud.

Make sure to check out some of the awesome links we have on our site – they can take you right to the application center for the best balance transfer credit cards currently available. We use a non-biased review process to find the most effective and affordable balance transfer cards on the market. You won’t have to worry about doing the leg work to find the right credit card – we’ve taken the pain out of the initial search process.

 

Preparing Your Credit Score

Even though applying for a balance transfer card is one of the best ways to improve your credit score in the long-run, you should still make an effort to improve your score prior to applying for one. This will make it easier for you to be approved for a card, and may also help you get a lower interest rate for when the interest-free period of the balance transfer card ends. Below are a couple tips on how to improve your score before your application.

  • Reduce Debt As Much As Possible – One of the largest components of your credit score is the percentage of your revolving credit balances that are in use. If you are able to pay down your debt, it can help improve your credit score in about a month. Every time you are issued a new credit card balance, your creditors will update your information with credit reporting agencies. This is one of the quickest ways to improve your score.
  • Check for Errors – A large portion of the American public have items on their credit card that can be removed. Don’t take your credit score for granted, make sure to check your report and see if there are any issues that you find to be either unfair or incorrect. You can submit forms to the credit reporting bodies to have these items removed. If you’re unsuccessful, a credit repair company might be able to help you out.

 

Verdict

Transferring your balance through a balance transfer card can be overwhelmingly rewarding for those who currently have high amounts of debt. But those who do transfer their debt to a balance transfer card should be aware that they should take time to research which the best card on offer is prior to applying. Applying to multiple cards at once can negatively impact your credit score. You don’t want to end up with a bunch of inquiries on your credit report, this can increase your credit score and impact your interest rates.

When you do decide to apply for a balance transfer credit card, you should take the process seriously. Make sure you’re in a financial position to be able to commit to paying down your debt in the interest-free period. You don’t want to waste your time getting a new credit card if you won’t be able to make use of its advantages.

If you feel that a balance transfer card isn’t right for you, there are plenty of other credit cards on the market. Each have their own unique advantages to benefit from. We have a large database of information on all the cards available to you as an American resident. Check out some of our other suggested cards on our homepage – there is sure to be a card that matches your needs!