Consolidating credit cards is nothing new to a lot of people. Despite everything that happened during the Great Recession, Americans seem to have recovered from everything that they went through. They are now more confident to use credit. You can just look at the current credit card statistics to know that this is true. Even if the Federal Reserve has raised the interest rate several times, people are not feeling shy about borrowing money.
While the use of credit can be beneficial, it can also be dangerous. It can compromise your financial future. This is why you need to make sure that it is always under control. If you can manage it, pay off your credit card balance in full at the end of your billing cycle. But if that is not possible, at least try to get rid of credit card debt within a year.
Getting out of high-interest rate debts as fast as you can is necessary to help you build a stronger and more secure financial future. Fortunately for you, there are many ways for you to do that and one of them is consolidating credit cards through a balance transfer.
The truth about consolidating credit cards through a balance transfer
A balance transfer card is a type of credit card that is usually offered with a 0% or very low interest rate. This is meant to attract consumers with credit card debt. The goal is to encourage them to transfer the balance to this new card. With the low-interest rate, consumers can expect to get a lot of savings.
Unfortunately, a lot of people do not even know that this consolidation option exists. They have no idea there is a thing called balance transfer cards and that it can be used to consolidate credit card debts. They are missing out on a lot because when used properly, this consolidation option will really cut down your interest payments by a significant amount.
Of course, to be able to use it properly, you need to understand 3 important facts about balance transfer.
There is a limit to what you can transfer
This will depend on the creditor that offers the balance transfer card. The range is usually between $10,000 and $15,000 and it is within a period of 30 days. Not only that, but you also have to consider your own credit limit. If the balance transfer card is only approved for $10,000, then you really cannot transfer more than that amount. Sometimes, creditors will insist that you only transfer up to a certain percentage of your credit limit – like 75% or something.
Make sure that you read the fine print before you choose a balance transfer card. That way, you can be aware of these limits.
The transfer of your balance is not immediate
When you find out that you are approved of a balance transfer card, you need to initiate the process of consolidating credit cards. You have to either go online or give the new creditor a call so they can help you with the process.
Once the transfer is in process, it usually takes between 7 and 10 days to complete. Again, this will depend on the creditor. There are times when it will take longer – especially when they encounter issues with your other creditors.
It is very important that you keep on paying your debts as usual – at least until the creditor informs you of the successful transfer. That way, you will not be charged with late penalty fees. That will just be another unnecessary addition to your debt and you definitely do not want that.
There will be fees
It seems counterproductive to pay for fees so you can save on your debt payments. But if you do your calculations correctly, you will realize that it will all be worth it. As long as you can save a lot of money on interest, you should be able to cover the balance transfer fees and still save a lot more. According to statistics, Americans paid around $113 billion in interest alone in 2018. This is probably caused by the way Americans increased their borrowing and the higher interest rates set by the Federal Reserve. So to escape the higher interest rates, consolidating credit cards through balance transfer seems like a great move to make.
However, make sure you pay attention to the fees. There is usually an option to waive the balance transfer fee but the 0% interest will only be for a few months. But if you accept to pay the fee, you can enjoy the low-interest rate for a longer time. Make sure you compute how much you will be saving to determine whether you will waive the fees or not.
4 steps to consolidate credit cards using a balance transfer
Now that you know more about consolidating credit cards through a balance transfer card, it is time for you to go through with the whole process. If you do not know how to do this properly, it can be a risky way to consolidate debt. But if you know the steps to follow, you should be able to use it to completely achieve debt freedom.
Here are the 4 steps that will help you in consolidating credit cards by using a balance transfer card.
Look at balance transfer options
Start by looking for different balance transfer cards that are currently being offered. These change over time so make sure you are looking at an updated list. There are websites that have programs that will help you compare rates and terms. This will make it easier for you to choose the best option that fits your financial situation.
Submit your application
Once you have made your choice, send in your application. Do not just fill out the form. You have to make sure that you will read the fine prints too. If there is anything that you do not understand, you have to discuss it with them. Never sign anything unless you are sure about the terms. Not only that, you have to make sure that you are getting the best rates and terms. That means understanding the qualifications and requirements. The higher the credit score, the higher the chances of getting the best terms. You can also feel free to negotiate – especially if you have a really high credit score.
Start the transfer process
As mentioned, this is not automatic. You need to get in touch with the new creditor to begin the process. It will take a couple of days to complete – as long as no issues will be encountered. Make sure you keep paying your dues until the creditor confirms that the transfer is completed.
Pay off the balance within the promo period
After the transfer is complete, start paying off the balance. You should aim to pay off all your balance within the promo period. That way, all your payments will go to the principal balance. If you have to make sacrifices, go ahead and do it so you can maximize your payments. The faster you can get out of debt, the more money you can save.
Now that you understand more about balance transfer cards, you can effectively use it in consolidating credit cards. If you follow the rules carefully, you will soon find yourself a few payments away from debt freedom.