If you have credit card debt, you may have heard about using the possibility of using a balance transfer card as a method of debt consolidation. However, what you may not know is that fewer card issuers have been offering this type of promotion during the coronavirus pandemic.
Read on below to learn more about what balance transfer cards are, how they work, and what it takes to get one in the current lending environment.
What are balance transfer cards?
As the name suggests, balance transfer cards allow you to transfer an existing balance from one credit card to another. In this scenario, you essentially use one card to pay off the other.
Multi-lender marketplace Credible has information on various types of credit cards, including balance transfer credit cards. Use their free tools to compare balance transfer cards and buy yourself some time to pay down debt.
- You can simplify balances
- You can simplify payments
- Chance of a 0% balance transfer offer
You can simplify balances: At their best, these cards give you the opportunity to transfer multiple balances from different credit cards onto one card.
You can simplify payments: Transferring multiple balances onto one card gives you the opportunity to shift multiple payments and interest charges into one monthly payment.
Chance of a 0% balance transfer offer: They typically come with a 0% balance transfer offer, which includes an introductory interest rate, giving you the chance to save money by paying off your combined balance without accruing any new interest on the amount that you owe.
Consider using an online marketplace like Credible to compare some of the top balance transfer cards side by side and pick the right one for you.
- You may have to pay a transfer fee
- 0% intro APR eventually expires
You may have to pay a transfer fee: Completing a balance transfer comes with a price. Typically, you have to pay a transfer fee in order to use this service, which can add to the overall amount of money that you spend on your debt.
0% intro APR eventually expires: Not to mention that the fact that the 0% intro APR doesn't last forever. If you don't end up paying your balance off before the introductory APR periods on these cards end, you could end up racking up more interest charges.
How do you get approved for a balance transfer card?
Applying for a balance transfer card is very similar to applying for another type of credit card, with one big caveat. While the application process is generally the same and mainly involves providing information about your income and credit score, many balance transfer cards require a good or excellent credit score in order to be approved for the card.
The rationale behind this requirement is that the opportunity for debt consolidation is a benefit that card companies offer in order to drum up some new business. From their perspective, it’s in their best interest to entice customers who have a solid credit history, and especially a solid payment history, to use their financial product.
If you’re not sure where your credit stands, don't worry — you can check your credit score for free. Once you determine your credit score (and if it's a good or excellent credit score), then you should explore your credit card options by visiting Credible to compare.
How do I improve my credit score?
With that in mind, if you're considering using a balance transfer card to consolidate your credit card debt, you may be wondering how to improve your credit score. Luckily, there are many easy-to-follow personal finance tips available to help do just that. They include:
- Making payments on time
- Keeping your credit utilization rate low
- Making larger payments than the minimum
Making your payments on time: First and foremost, you're going to want to make sure that you make your credit card payments on time every month. Payment history counts for 30% of your overall credit score and is often the first-factor card companies look at when approving you for one of their products.
Keeping your credit utilization rate low: In the world of credit cards, your credit utilization rate is the amount of credit you're currently using versus the total amount of credit that you have available to you at any given time. This measure accounts for another 30% of your credit score and, ideally, your goal should be to keep it as low as possible. In general, it's best to keep your credit utilization ratio below 30% or to try to use less than 30% of your total available credit, whenever possible. This can be tough to achieve, especially if you have existing debt or a low credit limit, but do your best.
Making larger payments than the minimum payment: If your goal is to raise your credit score, you need to pay at least a minimum payment every month in order to stay current with your card. However, if it all possible, your goal should be to make payments that are significantly larger than the minimum amount. Working towards paying down your existing debt will help lower your credit utilization ratio and, by extension, raise your score.
What are some other options?
If you're unsure whether you'll be approved for a balance transfer card, keep in mind that there are other options to consider. Depending on the specifics of your financial situation, getting a personal loan may be a better alternative.
If you want to take advantage of today's lower interest rates, check out online marketplace Credible. You can plug your information into their free online tools to find your rate.
For example, if you're unsure whether you'll be able to pay off your balance by the end of your 0% APR grace period, you should know that a personalized loan often comes with a lower interest rate than a credit card. In fact, according to the most recent data from the Federal Reserve, the average interest rate on a credit card is 14% while the average interest rate on a personal loan is only 9%.
If you think getting a personal loan might be the right choice for you, visit Credible to compare your personal loan options.
You can also use their loan calculator to see how much you can afford to borrow.