If you have a credit card, chances are you have received a balance transfer offer. When you go through with a credit card balance transfer, you are essentially moving your debt from one credit card to another in hopes of securing a lower interest rate. This works out well if your secondary credit card offers a significantly better rate, as it can save you money. In the end, this is a good idea if you can find the right card onto which to transfer your balance.
The main reason why people do a credit card balance transfer is to save money. In the short term, many balance transfer cards offer 0 percent interest rates for a predetermined period. If your new card offers a 0 percent rate for 24 months, it will save you hundreds, if not thousands of dollars. Even if the rate only lasts for six months, that is enough time for the lack of interest charges to help make a significant dent in your debt. Therefore, you should try to find a credit card that offers a low interest rate for an extended period, as this makes it easier to eliminate your debt.
Getting Out of Debt
The key to using a credit card balance transfer to get out of debt is to do the math ahead of time. This means that you must look at how much you owe and make the necessary monthly payments to eliminate your debt before your low interest period expires. If you can accomplish this, using a credit card balance transfer becomes greatly advantageous.
Improving Your Credit
Once you begin saving money and paying off your debt at the same time, your credit score will begin to increase. This occurs for a couple of different reasons, starting with your debt-to-credit ratio. Since you are using the credit card balance transfer to pay off an existing credit card with another one, your original credit card will no longer have a balance. As a result, you will be utilizing less of your overall credit, which improves your credit score.
Secondly, you will decrease your debt on your second card at a faster pace, due to the lower interest rate. Quickly dropping your debt will look good in the eyes of other lenders, and consequently will allow you to receive more credit down the road. Overall, this will be great for your financial situation, as you will be able to save a great deal of money and improve your spending power in the future.
Learn From Your New Card
No matter what, you should learn from your past mistakes and use your credit card balance transfer as a way of rectifying these mistakes. If you have ended up with too much debt from your original card, it is probably because you did not realize how much interest would be charged. Once the interest charges get to a certain point, it becomes almost impossible to get yourself out of debt because all you are doing is paying off interest every month. By using a balance transfer, you can hit the reset button and give yourself another chance to live a debt-free life.