If you have debt on a high-interest credit card or carry balances on multiple cards, transferring the balance to a card with a lower interest rate can be a great way to simplify debt payments as well as save on high interest charges. Here are the four things you need to know before you make the switch:
- You’re transferring, not repaying. Transferring isn’t the same as repaying. When you use a balance transfer, you are, in essence, paying off credit card “A” with new credit card “B.” The main benefit from a balance transfer is you can save money over the long haul if you pay back the previous amount you owed and you pay it at a lower interest rate, including all your costs.
- Consolidating simplifies payments. If you’ve maxed out multiple credit cards, can’t keep payment dates and minimum payments straight and often accrue late fees, putting all your credit card debt on one card may be a good move. You’ll have just one card to keep track of and one payment to make each month.
- Be mindful of fees. It isn’t quite as simple as making a swap from a high interest rate to a low interest rate anymore. Most banks charge a balance transfer fee, which is determined as a percentage of the total amount you’re transferring. A typical fee in 2017 is 3 percent, so if you transfer a $10,000 debt from another card, you’ll pay a $300 fee right away.
- Transfer rates do expire. Balance transfer promotional rates don’t last forever. After a set period, the interest rate will increase to a standard interest rate.