If you have existing credit card debt then it may be worthwhile carrying out a balance transfer to help save money and pay down your debt. By transferring the balance from your existing card to one that has a lower annual percentage rate (APR) or, ideally one that offers zero per cent on balance transfers, you can lower your monthly repayments and may even be able to pay off the balance sooner than anticipated.
But the process of transferring a balance may not be as simple as you might expect, so take note of these five tips to ensure your balance transfer is a straightforward success.
If you have a good credit rating then you may be eligible for a credit card that offers a period of zero per cent interest on balance transfers. This means that you will be able to transfer the balance from your existing card and will have a period of time, currently between six and 12 months appears to be the norm, whereby you can pay off the balance of the card without being hit with interest charges.
The downside is that most lenders will impose a balance transfer fee, usually between three and five per cent of the balance being moved, which needs to be considered when deciding whether a balance transfer is the best option. If you are not confident that you will pay off the balance before the interest free period expires then you may be better off considering a low interest credit card or even a debt consolidation loan.
Before you apply for any new financial product it is worthwhile checking your credit score as this will give you a good indication as to whether or not your application will be successful.
The best way to do this is to get in touch with the three bureaus that lenders report to which are Equifax, Experian and TransUnion. And because each of them may hold different information on file it is worthwhile getting reports from all of them to gain a true picture of your credit history.
If you have an excellent credit rating then it is more likely that you will be accepted for new credit but if this is not the case then it may be worthwhile carrying out some form of credit repair before you proceed with a new application.
Applying for multiple credit cards at any one time can have an adverse affect on your credit rating and so it is imperative that you apply for the right card. So you need to be aware which company your current credit card is with and ensure that you do not apply for a new card with the same lender as you will not be able to transfer the balance between these two cards and it will be a wasted application.
For example, if you have a balance on a Disney Rewards visa card and you apply for a Chase Slate card then you will not be permitted to transfer the balance between cards as both are issued by Chase. So before you apply for a new credit card you should always find out who issues the card and whether you can actually transfer the balance from your existing card.
Once you have chosen your card and transferred your balance you need to make sure that you remember to pay your monthly payments on time. If you default on just one payment there is a good chance that you will be in breach of your credit contract and your card provider could cancel your 0 per cent deal and put you on their standard interest rate.
This means that you could end up paying a higher interest rate than you were before you transferred the balance, making the whole thing a waste of time. If you feel that this is a possibility then it may be a good idea to set up a direct debit so payments are taken directly from your account each month. And always try to pay off more than the suggested minimum payment as paying just the minimum amount each month could mean that your debt will take a long time to pay off.
Just because a card offers zero per cent on balance transfers that doesn't necessarily mean that it offers zero per cent on new purchases. So if you do take out a balance transfer credit card then be sure to check the terms and conditions as you may leave yourself wide open to excessive interest charges if you spend on this card.
For this reason alone it may be a good idea to use your balance transfer card solely for this purpose and this will have the added benefit of keeping that debt separate so you can concentrate on paying it off. If you start adding to that debt then you can lose this focus and end up in even more debt.
If you do want a card that you can also spend on then there are some cards that offer an interest free period on balance transfers and new purchases but, again, it is most likely that you will have to have an excellent credit score to qualify for one.
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