Balance Transfer

Full definition

Balance transfers are one of the most cost-effective debt-reduction tools available to consumers with good credit, because a 0% introductory APR means every dollar of payment reduces principal rather than paying interest. How it works: You apply for a new credit card with a balance transfer offer. Upon approval, you request the issuer to transfer a specified balance from your old card(s). The issuer pays off the old card(s) and adds the transferred amount to your new card balance. You then make monthly payments on the new card. Transfer fee: Most balance transfer cards charge a fee of 3-5% of the transferred amount (e.g., $150-$250 on a $5,000 transfer). Occasionally, cards waive the fee during a promotional window. Even with the fee, you can save significantly if you pay off the balance before the promotional period ends. What happens when the promo period ends: Any remaining balance reverts to the card's standard APR, which is often 20-30%. If you cannot pay the full balance within the promotional period, a personal loan with a fixed APR below the standard card rate may be a better vehicle. Credit impact: Applying for a balance transfer card results in a hard inquiry (small, temporary score dip). Opening a new account reduces average account age. However, if the new credit limit reduces your overall credit utilization, your score may improve net. When a personal loan is better: If you cannot realistically pay off the balance within the promotional period, a fixed-rate personal loan may be cheaper overall. Personal loans have defined payoff timelines; balance transfer cards require discipline to avoid running up the old card again. Eligibility: 0% introductory APR balance transfer cards typically require good to excellent credit (670+). If your score is below that threshold, a personal loan from an online lender may be your most accessible path to lower-rate debt consolidation.

• Debt Consolidation Loan
• Credit utilisation
• Debt Snowball