Having a credit card balance beyond what you can afford each month can be stressful, especially if your interest rates are high. Solutions exist to help pay down your debt, including credit card balance transfers.
In its simplest explanation, a credit card balance transfer allows you to transfer a balance from an existing credit card to a new one that has an introductory annual percentage rate that is lower or a 0% APR.
Benefits of credit card balance transfers
The main benefit of a credit card balance transfer is that it enables you to save on interest you would have paid on your first credit card and potentially allows you to pay down the balance faster because you are saving on interest.
A good candidate for a credit card balance transfer is someone carrying a large balance on their credit card and struggling to pay it down or make monthly payments due to added interest. This person is often paying high-interest rates on one card and looking for a better way to address their credit card balance.
A credit card balance transfer can be an excellent tool to save money on interest. In addition to helping consolidate payments from multiple cards (all of which may be accruing interest) into one payment on one card, credit card balance transfers also provide flexibility to move debt from one card to another.
Things to consider
The main downside of a balance transfer is that you may face more upfront costs, such as balance transfer fees, and if you are already struggling to make payments or working to improve your credit score, this can be prohibitive. By transferring a balance, you also have more institutions pulling your credit information, and these pulls add to your credit profile. Finally, lower interest rates are often for a limited period. If you are interested in a balance transfer, ensure you understand that timeline and your ability to make payments before the interest rate increases.
If you are struggling with payments overall, other mechanisms exist to help decrease your debt levels rather than transferring balances from one credit card to the next. One alternative to credit card balance transfers is to utilize a fixed-rate personal loan to pay off the balance on your credit card. Then, much like other fixed-rate loans like auto loans, you have a period of time to pay back the amount where a portion of each monthly payment is paying down your debt.
Often, people with high-interest rates don’t realize that most of their minimum monthly payments go to interest without impacting their debt. By utilizing a personal loan, you are able to make consistent payments and ultimately know how long you will be making that payment. This choice can empower you and ensure that a portion of your payments go toward the principal loan amount.
If you consistently have a balance you need to carry, try not to do it on a credit card. Try to do it on a fixed-rate loan versus transferring a credit card balance from one card to another card, which almost always catches up with you.
Focus on paying down your debt more than just saving money on your debt. There are a lot of great financial education resources out there, but seek advice from an appropriate provider (e.g., your community credit union) on how to help reduce your debt load overall.
At Elevations Credit Union, we offer two personal Visa credit cards with an introductory APR* as low as 0% for one year. Working with your community-based credit union that understands your needs and can recommend ways to help you achieve your financial goals is a vital step.
You only save money on your debt by paying it down or not having so much. Contact the Elevations team today to learn more about taking control of your financial journey. We’re here to help.
* All offers of credit are subject to credit, approval, and membership eligibility. All credit union rates, terms, and programs are subject to change at any time. Annual Percentage Rate.