Best Reasons to Transfer a Balance

By Stephen Fisherton on June 2, 2015

Transferring your credit card debt to a new card might be one of the best financial moves you can make. If you have a substantial amount of debt, or even a small amount that’s at a high interest rate, and aren’t convinced that transferring that debt to a new card is the way to go, read on to find out the best reasons to transfer a balance.

You’ll save on interest. Balance transfer credit cards offer a promotional period with no interest. That 0% APR is the main reason to transfer your debt, and probably the best reason—but it isn’t the only one. However, let’s look at how much you can really save by paying zero interest on your credit card debt for a period of six months, a year, or longer. Find out how much interest you’re paying now, on each of your credit cards. Write down the amount of debt you have on each card, along with the interest rate for that card. Now use a debt calculator online to find out how long it will take you to pay off that debt, and how much you’ll pay in interest.

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Since the Credit CARD Act (Credit Card Accountability Responsibility and Disclosure Act) of 2009, credit card issuers have been required to provide this information on your statement, making it even easier to see how much interest you’ll pay if you pay only the minimum amount due, versus a great amount, or if you pay the whole thing off. Balance transfer calculator tools are still very useful though, because they let you enter different possible payment scenarios for each card.

You might get a bonus. Lots of credit cards with 0% APR balance transfer offers also have great sign up bonuses. From frequent flyer miles to gift cards, you could be in for a surprise. Transferring your balance might not only mean paying your debt off faster and forking over fewer total dollars, it might mean getting a free round trip plane ticket or a free hotel stay, too. That’s an offer that can’t be beat.

Your credit score could get a boost. One of the big factors that influences your credit score is your debt-to-credit ratio. In other words, how much money you owe your creditors relative to your amount of available credit. Let’s say you have $10,000 of credit across all your cards, and you owe $7,000. You only have $3,000 of available credit, which is less than half your total available credit. Apply for a balance transfer card with a $10,000 limit, get approved, and now you owe $7,000 but have a $20,000 total credit line, with $13,000 available. Your credit score will rise.

Ideally, your debt should be less than 30% of your total available credit. Ten percent is even more ideal. Sometimes this isn’t possible, especially when you’re struggling to pay down old debt. But applying for a balance transfer credit card can help.

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