How To Save Money With Balance Transfers
It is wise to keep an eye on safe opportunities that can help you save some money when you have to service a high-interest debt. On that note, it may sound funny that another credit card can actually help you with that, but the truth is that you can save hundreds or even thousands of dollars through balance transfer cards.
What is a balance transfer? It simply means a section or all of the debt (or debit balance) you owe a lender gets transferred to a new lender – one store or credit card to another — of cause with the goal of saving on interest repayment for a period of time.
How Much Can You Save with Balance Transfers?
Well, it depends on the type of card you go with and the introductory period it offers before you are supposed to start repaying the debt. Some cards offer 15 months as a relief period. During this time you will not be required to pay the interest amount of the debt, only the capital amount.
Additionally, other cards do not charge the balance transfer fees at least for the first 60 days after you sign up with them. After that, a small fee mostly 3% to 4% would be charged as transfer fees.
Below is Exactly How You Save on Interest Using Balance Transfers
- First of all, figure out the exact amount of debt you owe
- Then check around to see available balance transfer offers and go for the best deal that would save you money without hidden terms.
- Now, create a plan of repayment that helps you to pay the debt fast
- Take advantage of the card’s “0” percent APR introductory period to pay the balance as much as your income allows.
- Stick to your repayment plan until you are off the hook of debt.
A Simple Example:
Picture this, card “B” is offering a great deal, and you’ve decided to transfer your $17,000 balance debt to it. The offer states that you will have until after the elapse of 15 months to pay the interest amount. You will also pay the transfer fees only after a certain period expires. Now, let’s say the interest rate amounts to $390 a month, which means you will have saved $350 (interest) multiply by 15 (the APR introductory period). That’s a total of $5850 in saving; an amount enough to help you reduce your debt significantly.
Are there Risks Involved?
The major risk of using a balance transfer is that you may end up spending on your credit card again forgetting that this is just a relief from paying interest. Also, most cards will charge a fixed transfer fee of anywhere between 3 to 5 percent, something you can avoid if you can afford to pay off your credit within the next 6 months.
Top of that, you might not want a balance transfer if you are planning to apply for a mortgage soon, because it reduces your credit score by 10 or more points. And finally, you’ll have to get the transfer from a different bank, which means you’ll have to do some homework to understand their terms.
Otherwise, minus the risks, there is nothing complicated with balance transfers because all this means is that you have just transferred your debt from card “A” to card “B” to save on interest.