While you’ve probably heard about credit card balance transfers, you may be unsure how they work and the associated benefits. If you carry multiple loans or credit card balances, a balance transfer credit card may be a good option for consolidating debt and simplifying your finances.
Keep reading to learn more about the benefits of a balance transfer and how one could be valuable to you!
How Balance Transfers Work
A balance transfer is moving the balance of one credit card to another credit card to save money (while also trying to pay off the current balance). To put it plainly: you’re paying off one credit card with another credit card.
Credit card balance transfers are normally intended to save money by moving high-interest credit card debt to another credit card with a lower interest rate. If considering a balance transfer, know that some involve fees or other conditions. At Bowater Credit Union, our cards offer you savings with no annual or balance transfer fees.
Balance Transfer Benefits
There are many benefits to a balance transfer! It just depends on selecting the right path (and the right card). Bowater Credit Union is here to help! Check out some popular balance transfer benefits.
Lower Interest Rate
One of the major benefits of a balance transfer is being able to take advantage of a lower interest rate and save money. The lower rate is especially beneficial if you currently have a high interest rate on your existing loan or credit card.
Since you’ll have a lower interest rate with a balance transfer, more of your monthly payment will go toward reducing your credit card balance instead of toward interest. You may even be able to pay off your balance completely by the time the promotional period (if this applies to your new card) ends.
A balance transfer allows you to combine multiple loan payments into one as long as it doesn’t exceed your credit limit. This will save you money by allowing you to pay less interest, and it will save you time and headaches by simplifying your payment schedule.
This doesn’t even have to be just credit cards – you can also sometimes transfer student and auto loans to a credit card depending on the balance and your credit limit. It’s much easier to pay off one balance than it is to pay off several, especially if you’re struggling to keep track of multiple payments.
Introductory Rates and Terms
If considering the benefits of a balance transfer, take a look at any running promotions, including those featuring a 0% annual percentage rate (APR) for a certain period. But make sure to define exactly the rules. A timeline long enough for you to pay off the debt before the interest rate changes is ideal.
After the promotion is over, you will have to start paying the new interest rate on the remaining balance. That being said, if your new card has an interest rate of 10% and your old card had an interest rate of 22%, you’re still saving money on interest, so you’re still helping yourself long-term.
Better Perks and Rewards
Another benefit of a balance transfer is having a card that rewards your spending or gives you perks for shopping you were going to do anyway. For example, travel cards, rewards cards, and airline cards all frequently offer hotel discounts, cash-back awards, or free flights.
If you have a more basic credit card with no perks attached, finding a balance transfer deal that also offers perks is worth considering. Do your research to find cards that offer cash back, gas rewards, miles, or points just for making a transfer!
A Roomier Budget
With a lower (or non-existent) interest rate on your new card, much less of each payment will be going toward interest. This will allow you to take bigger chunks out of your debt with each payment instead of feeling like you’re going nowhere because so much of each payment is being eaten up by interest.
If most or all of your money is going toward the debt, and you’re still making the same monthly payments, you will be debt free much faster. This will, in turn, leave much more space in your monthly budgets to go toward other goals.
Balance Transfer Benefits With Bowater
Balance transfers can be a great debt management tool – as long as you use them wisely. Research your options and plan how much you can put aside each month to pay off your debt. You’ll soon be on your way to better credit and more money back in your pocket.
If you’re ready to make the move and help get yourself out of credit card debt, Bowater can help! Learn more about our balance transfer credit card options below.