Keeping Your Balance

If paying off your credit cards feels like a balancing act, that’s because a lot of the time, it is. Discovering the best ways to leverage- and eventually eliminate- your debt can be a tricky process. One of the tools you can use, however, is a balance transfer credit card.

What Are Balance Transfer Credit Cards?

Quite simply, balance transfer credit cards allow you to switch outstanding balances from one credit card to another. For example, let’s say you owe $5,000 to Visa. A balance transfer card would allow you to pay that balance off to Discover instead.

The Benefits of Balance Transfer Credit Cards

Balance transfer credit cards can be advantageous because of interest rates. If you are paying 16% interest on your credit card with Visa, another company might give you an introductory interest rate that is much lower, and sometimes as low as 1%-2%. That can mean substantial real world savings. Just do the math: 16% of $5000 is $800.  2% comes out to a more manageable $100 payment on the same debt. For most people, that makes their debt an easier load to balance.

What’s the Catch?

Balance transfer cards are a great way to minimize the negative impact of your debt. However, there are risks involved that make it important for you to be informed. Aside from risks generally associated with new credit cards (too many credit cards and credit card applications can impact your credit rating), there are a few other things to watch for.

Don’t Let Fees Catch You Off Balance

When you browse balance transfer credit cards, one of the most important things to note is the fee schedule. Frequently, credit card issuers will request a fee for the transfer of your balance. This fee can vary significantly.

How much? Some charge fees based on a percentage of the balance transferred. Others cap transfer fees at $50 to $75 dollars. It’s important to get to work and do the math to figure out what your real cost will be. You need to figure out what the exact fee will be to discover if it is advantageous for you to transfer balances in the first place.

One trick: If you’re persistent, there’s a chance you can get fees waived or decreased. However, it’s not something you should count on.

Watch Your Debt Carefully

After fees, it’s important for card users to be aware of their debt. Make sure that your debt has been accurately transferred from your old card to your new card. Until your statements show the transfer, act normally and pay off all appropriate fees on your old card.

In addition, you’ll need to pay fees on your new card on time. Balance transfer credit card policies occasionally change if you miss a payment, so you need to be aware of any possible changes.

Be Aware of Fee Changes

The benefits of a credit card balance transfer- lower interest rates on your debt- won’t last forever. That’s why it’s still important to pay off your debt and be aware of the length of time that you’ll have an introductory rate.

A Balanced Approach to Your Debt

If you remember the pros and cons of balance transfer credit cards, you’ll have an opportunity to alleviate the effects of your debt and get a head start on repaying it. These cards don’t erase your debt, but they do help clear your view of the obstacles ahead. Hopefully, that can help you feel more comfortable about your balance.

This article is part of TakingCredit.com’s credit card glossary. You can learn more about credit through our archive of credit card tips and our credit card blog. Photo by Kennymatic.