Save Money with a Credit Card Balance Transfer

Save Money with a Credit Card Balance Transfer

Posted in Articles by Jessica

Save Money with a Credit Card Balance Transfer

Reduce your interest rates and make the most out of what you're paying to your credit card company every month. Use our debt repayment calculator to find out what you’re actually paying, because with interest rates up in the 24% range, it's probably a lot more than you think. Maybe your minimum monthly payments just aren't enough to make the kind of dent in your debt that you'd like, or maybe you got hit with an interest rate that's just too high. Switch your balance to a new, lower interest rate card researched by to bring your debt down to a manageable amount. Balance transfer credit card rates are averaging between 10.19% and 20.9%, offering customers 0% introductory rates and no annual fees. These perks can give you the added advantage of more aggressively attacking your debt during these times. In addition, many cards offer additional incentives such as discounts on travel and merchandise, road-side assistance or cash back deals. Switching your existing balance to a lower rate card mean that your monthly payments mean more as time goes on.

Understanding Introductory Rates


One of the easiest ways to save money is to look for introductory rates on new cards. If you understand how to best utilize these offers you can easily come closer to paying off debt in a timely fashion. While using credit cards isn't an ideal way to cut back on debt, there are ways you can save if you know how to make it work for you.

Most credit card companies will offer introductory rates on balance transfers when you open a new account. This means you can move debt from a higher interest card to a card with a much lower rate. Introductory rates can range from 0%-15% for anywhere from 3 months to a year. There is a trick to paying off debt with this option. Take your highest balance card and look for a good introductory rate. Pay attention to the terms. If the rate is only good for 6 months, you need to figure out how much you could feasibly pay in that time frame. This is where using a monthly payment calculator is going to come in handy. Lets look at an example.

If you have a credit card with a $2,000 balance and an 18% interest rate, you would have to pay almost $200 a month including compound interest to have it paid off in a year. Using credit cards with a 0% introductory rate would slash that payment down to $166 a month for 12 months. Over the course of a year you would save over $300. You can use a monthly payment calculator to figure out how much you can save by switching to a credit card with a decent balance transfer introductory rate.

Balance Transfer Fees


Transferring a balance to a lower rate credit card isn't always free. When you start looking for cards that can save you money you want to pay attention to the balance transfer fee associated with it. These can vary greatly from card to card. Some cards may have a capped flat amount they charge, while others charge a certain percentage of the overall balance. It's not uncommon for these fees to be as high as 5%. This may not sound like a lot at first, but when you're looking at transferring high dollar amounts it can add up. A credit card that charges 5% without a cap on a balance transfer of $10,000 will cost you a whopping $500. In these cases it may be better to find a card that has a slightly higher interest rate than it is to pay that fee. As an example, if you transfer that $10,000 balance to a card with a 3% introductory rate for balance transfers, the overall interest on that would be around $300, less than the 5% rate. If you are faced with choosing between a 0% rate with a 5% fee or a 3% interest rate with no fee, the best choice is actually going to be the higher interest card. If you don't want to do the math by hand, keep the monthly payment calculator open while you search.

Fixed Versus Variable Rates


It's pretty uncommon to find variable interest rates on balance transfers, but they do exist. You want to watch for these for a few reasons. Variable rates can be difficult to keep up with, and confusing to understand. The variable rate simply means the credit card company is charging a rate over the prime rate. The prime rate is determined by the U.S. Prime Rate as published each month. Most credit card companies will base the rate on the published rate as determined by the Wall Street Journal. The prime rate in the past decade has fluctuated wildly, ranging from 3.25% to 9.5%.

The credit card company will charge a rate above that. It will usually be somewhere between 1 and 8 points above. You'll see something that looks like "Prime + 3.99%" for variable rates. When the prime is low, this is a good way to save money. However, you don't know from month to month what's going to happen with this rate, so it can be risky to transfer a balance to one of these cards. You're much better off getting a fixed rate even if it's higher at the time than prime. A flat 6.99% rate is much more reliable than a variable rate, especially for a balance transfer.

Perks and Points


When you're looking to save money there may be some hidden perks that can save you money too. For instance, if you choose a card that offers frequent flyer miles with purchases and balance transfers, and you're a frequent traveler, you can enjoy getting points just for the transfer. Many cards have reward programs that will entitle you to a variety of savings. Look for cards that most closely match your lifestyle and check to see what kind of perks they offer for balance transfers to save the most money.


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