During the holidays, big fun often comes with bigger spending – and lingering credit card debt in the new year. If you’re carrying balances on high-interest cards, a credit card balance transfer could be a smart way to cut down on your interest, not to mention financial stress.
How Balance Transfers Work
Credit card balance transfers are a type of debt consolidation that lets you shift unpaid balances from one card to another. This can be a valuable financial strategy when you transfer balances from high-interest cards to one with a lower APR (annual percentage rate).
Often, to attract new business, financial institutions will offer a credit card with a 0% or low introductory APR on transferred balances. To take advantage of this money-saving offer, you would complete the financial institution’s process to move existing balances over to your new card (then, if desired, close your previous cards).
During your new card’s initial low-rate period, the transferred balances will accrue less (or no) interest, so you can focus on paying off this debt. Balance transfers can be a smart way to:
- Save Money and Banish Debt Faster
More than half of American cardholders carry credit card debt, and one in 10 owe more than $5,000. With rates averaging around 17% – and some approaching a whopping 30% – it's easy to see why balance transfers are appealing.
Just think: If you’re carrying $5,000 in credit card debt, with a moderate 15% APR, you’ll be on the hook for $750 in additional interest in just a year. With a good balance-transfer offer, you could secure a low rate for long enough to pay off that debt – without having to worry about hundreds of dollars in new interest.
- Simplify Your Finances
When you transfer all your high-interest balances to one credit card, you combine multiple payments into one monthly bill, saving you time and the hassle of juggling multiple bills and payment due dates.
- Switch to a Card with Better Terms
You can also win by switching to a credit card with a lower standard APR and fewer fees.
- Help Improve Your Credit
Missed payments and over-dependence on credit can hurt your credit score. A balance transfer can be a great first step toward paying off existing balances, improving your spending habits, and boosting your credit.
What to Consider First
When shopping for a balance-transfer card, keep these things in mind.
- Transfer fees may apply. Many cards charge a balance transfer fee of 3% to 5% of transferred balances. Weigh this fee against the potential savings from a low starting APR.
- Promotional rates are temporary. Typical promotional periods last 12 to 18 months. Give yourself some extra breathing room by finding a card with a long low-interest period.
- It's not an instant cure. Paying off debt may require diligent effort over many months. Create a plan to pay off your transferred balance during the intro period, if possible, in order to save as much money as you can. Pay far more than the minimum monthly payment, and minimize credit card purchases until you’re no longer carrying such a large balance.
Once you have successfully paid off your balance, be mindful of how you use your credit card moving forward, and try to pay your credit card bill in full each month.
Check the Fine Print
As with any financial product, be sure to read the fine print when considering a balance-transfer card. Ask yourself these questions:
- How high is the standard APR after the introductory period?
- Will I trigger a penalty APR if I miss a payment?
- Does the card have a balance transfer fee? How much is it?
- What about other fees, like annual fees, late-payment fees, and over-limit fees?
Make High Interest History
If you’re looking for a quicker way to pay off credit cards, transferring balances to our low-interest Dover Federal Visa® Credit Card is a great way to do it.
You'll enjoy a low APR on transferred balances for 24 or 36 months – far longer than most balance-transfer cards offer – with low or no transfer fees depending on which introductory offer you choose. Plus, the card offers a low standard APR, has no annual fee, and is backed by Dover Federal’s great local service.