High-interest credit card debt can weigh the average working family’s monthly budget down. The inability to cancel out credit card balances is only compounded by escalating interest charges. In an effort to get out from under the stress of unmanageable credit card debt, people are looking for practical solutions.
One of the effective financial strategies involves transferring balances to lending options with lower interest rates. A common solution is a balance transfer credit card. If you're wondering “What is a balance transfer credit card, and how does it work?” you're not alone. Given that U.S. credit card debt recently reached a record high of $986 billion, up 20 percent from 2022, understanding how a balance transfer credit card can help will prove invaluable in terms of debt reduction and financial freedom.
Balance transfer credit cards are any type of credit card that allows users to move higher interest debt onto a credit card with lower interest. When people transfer their balances to lower interest credit cards, it can potentially save them a lot of money when done strategically.
In many cases, people apply for low-interest credit cards that offer zero-percent introductory offers. These usually last for a variety of months allowing savvy people to pay off the balance within that time limit. When feasible, the balance transfer credit card helps them pay off the total amount without having to also pay interest charges. That can be an enormous saving when selecting the right credit card. With a low rate credit card, rewards credit card, and even student credit card options available for balance transfers, it’s important to keep these factors in mind when trying to select the best card for your needs:
Be sure to read the fine print to ensure your new card will not charge the typical 3-5 percent on balance transfers. That charge alone can upend the strategy of reducing or eliminating the debt altogether.
Now that you understand the basics of balance transfer credit cards, the next step is deciding whether it’s the right solution for you. People who leverage this debt-reduction strategy are often struggling with high balances across multiple credit cards. People usually have car loans, house payments, and other bills that leave little of their hard-earned incomes left for leisure spending. But before you run out and apply for yet another credit card, ask yourself the following questions.
More than one-third of Americans carry credit card balances from month to month, which increases their indebtedness. When that interest is north of 20 percent, it can have a profound impact on your financial life. If you feel like you’re sinking in financial quicksand, a balance transfer credit card could be the right solution.
The basic concept behind this revolving line of credit is that qualifying people can move high-interest debt to a lower-interest account. Local lending institutions tend to be quite flexible about what gets consolidated onto the balance transfer credit card. While it's very typical to see high-interest credit card debt consolidated onto a balance transfer credit card, other debts such as automobile loans, student loans, personal loans, and home equity loans can also be combined if they fit within the new credit limit.
It’s important to keep in mind that even the best balance transfer credit cards have some limitations. Most will not allow you to move balances from credit cards from the same issuer. That essentially means you can only move balances from credit cards issued by other financial institutions.
Like any borrowing option, balance transfer credit cards can be a mix of pros and cons. The one best suited for your situation can help fulfill your short- and long-term financial goals. These are among the most reported benefits of using a balance transfer credit card.
You may also discover that balance transfer credit card options such as a rewards credit card that offers fee-free balance transfers provide value-added perks such as redeemable rewards points for brand-name merchandise, gift cards and more. Given how much you’d already be saving, the rewards are the frosting on the cake.
While the right transfer card can deliver almost exponentially positive benefits, the wrong card can worsen your financial health and well-being. By conducting due diligence and speaking to your local experts, you can avoid the following setbacks.