Balance transfer terms should always be considered if you want to be sure that this consolidation strategy is the best debt solution for you. There are so many options to get out of debt and each of them is best suited for a specific financial situation. When you use the right debt consolidation option, it means you will be getting an affordable repayment plan. This will help you complete the debt relief program and achieve freedom from debt. Not only that, but it is also possible to save money in the process.
One of the effective consolidation options that you have is a balance transfer. While this is a great way to get out of debt, one survey revealed that only 38% of their respondents used a balance transfer as their debt solution. Most of the people who opted for it are Baby Boomers – with half of them opting to use it. Only one-third of Millennials used it as their debt solution.
This is quite unfortunate because balance transfer does have a lot of benefits. If you know how to use it properly, you can save a lot of money and be out of debt in less than two years – maybe even a year.
4 important balance transfer terms to consider
While using this specific consolidation strategy is a good option, you might want to get to know the balance transfer terms before you make your final decision.
This type of debt consolidation strategy involves getting a new credit card that allows consumers to transfer existing debts into the new account. These cards are offered with a lower interest rate – usually 0% rate. This is only implemented within a specific payment period that ranges between 6 to 21 months. Once the promo period expires the interest rate will revert to its original rate – which is usually higher than the introductory promo rate.
If this debt consolidation option is appealing to you. there are 4 important balance transfer terms that you need to scrutinize before you make a choice.
0% interest deal
The 0% interest rate is very attractive. With the average credit card interest rate between 15.99% to 20.90%, this rate will give you huge amounts of savings. However, you should also remember that this will not last forever. As mentioned, it will only last between 6 to 21 months and it will depend on other balance transfer terms. You have to keep this in mind before you focus on the 0% interest.
Ideally, the longer the promo period, the better it will be. But you also have to keep in mind that creditors offer a longer promo period but it comes with a cost – a balance transfer fee. If you do not like this fee, you may have to accept a shorter promo period. This is why you need to make calculations to ensure that you will be saving money when you use a balance transfer. Make sure that you will really save money. If not, then it might be better to look for better deals – or maybe another consolidation strategy.
Balance transfer fee
Now that the balance transfer fee is mentioned, it is important for you to pay attention to it. This fee is capped at 3% to 5% of the amount that you will transfer. Some creditors opt to get a fixed amount as the fee. It varies depending on who the creditor is. This is why you need to go through several balance transfer cards so you can compare what they offer. While paying the fee will help you get better terms (e.g. longer promo period), you still need to ensure that it will be worth it. Understand the different factors that will affect your debts before, during, and after the transfer. It will help you determine if the fee is worth paying or not.
This is one of the balance transfer terms that is probably ignored by many. However, it is important for you to take note of the transfer deadline imposed on your debts. As you read through the terms and conditions, look at any deadlines specified. Your goal is to know when you are allowed to make the transfer and if it will eat up a portion of the promo period. For instance, if you only got a 6-month 0% promo period, you want to make use of every single month. If the transfer takes a week or so to complete, that means your promo period will be a lot less. You may want to expedite the transfer so you can enjoy the interest-free payments for as long as you can.
Finally, you need to look into is the credit score requirements. To get the best terms, you need to have a good credit score. At least, it should fall under the “fair” category. While you can probably still be approved despite having a bad credit score, it will not be the most ideal of terms. Of course, it will still vary depending on the creditor that you are currentlly talking to. Some will only affect the terms minimally. While others might be more strict and will give you less favorable terms. This gives you more reason to shop around for options. That way, you will really be certain that you are getting the best out of the balance transfer terms that is offered to you.
Tips to succeed in consolidating through balance transfer
Even if you have chosen the option that offers the best terms, it is still important for you to follow certain rules and strategies to make balance transfer a success. Even if you choose the one with the best balance transfer terms, it will be for nothing if you do not know how to use it properly.
Here are tips that will help you consolidate debts through a balance transfer successfully.
Research several balance transfer offers
This had been mentioned several times already. Make sure that you will do your research and have three or more creditors to choose from. And if you feel like you are not satisfied with the terms you are getting, then do not stop searching. Or you can negotiate. Keep looking until you are certain that you like the balance transfer terms that are offered to you.
Pay as much as you can
Once you have chosen the balance transfer card that you will use, exert all your efforts in paying as much as you can. The 0% interest means every cent of your payment will go to the principal balance. You want to take advantage of that while the promo period is still in effect. Once it ends, a high-interest rate will be applied and that can add more into your balance. If you can pay off the whole debt before the balance transfer promo expires, that will really help you save a lot of money.
Avoid using the card for purchases
Finally, you need to make sure that you will not use the balance transfer card for purchases. After all, it is still a credit card. The balance transfer terms would indicate the interest rate of the card for new purchases. The 0% is only for the transferred balance. But if you use it on new transactions, the balance will be affected by the high-interest. If you can avoid it, do not use the card until after you have paid off all the balance that you transferred.