A balance transfer may be an effective way to reduce your debt. Some credit card companies provide a low or 0% introductory APR for a limited time, allowing you to contribute more to debt repayment. Choose a credit card to transfer your balance to, and then decide which debts to transfer. Remember to use all available funds to pay off your debts as soon as possible. After the promotional period expires, you will be charged again (with interest) on the balance of your debt.
Part 1 Finding Cards with a Low APR
1. Examine your current credit cards. You may already have a credit card that allows balance transfers. Often, the bank will send you an email informing you that you can make a balance transfer.
Alternatively, you should check your online account. There could be a link for “balance transfer” or “debt consolidation.” If you don’t find what you’re looking for, call and speak with a customer service representative.
Check to see if a current card has an outstanding balance. For instance, suppose you have a $3,000 balance on card A that you want to transfer to card B. Card B, on the other hand, already has a $2,000 balance. If you make the transfer, your minimum payment will be reduced to the amount with the lower APR. Meanwhile, the original $2,000 balance continues to accrue 14.99 percent interest.
In the aforementioned situation, you may want to consider transferring your balance to a new card.
2. Look for credit cards on the internet. There are numerous websites that allow you to compare credit cards. Keep in mind that you cannot transfer a balance between cards issued by the same bank. As a result, look for cards from a different bank. Use the comparison websites listed below:
3. Contrast terms. You want to get a card with the best terms possible so that you can pay off your debt as quickly as possible. When comparing credit cards, keep the following terms in mind:
The rate of transfer. Many credit cards offer 0% APR for a set period of time (such as 12-18 months). The greater the length of this promotional period, the better. Depending on your balance, you could save thousands of dollars in interest. Transfer charge. Most cards will charge a percentage of the total balance, such as 3-5 percent. If you transfer $10,000, you will be charged an additional $300-500 fee.
Window for transferring data Some credit cards will only allow you a certain amount of time to request a balance transfer.
APR after promotion. Learn what happens if you are unable to pay off the entire balance during the promotional period. In most cases, banks will only charge you interest on the remaining balance. However, you do not want a card that charges interest on the entire initial transfer.
4. Examine your credit score. If you have a credit score of 680 or higher, it will be easier to obtain a credit card for a balance transfer. If your score is low, you may have fewer options or may be unable to obtain a card at all.
A credit card service can help you determine your credit score. Look for it on the internet. Some businesses will give you your score for free.
You can also consult a credit counsellor or a HUD-approved housing counsellor, both of whom can usually obtain your credit score for free.
Finally, you can purchase your credit score from one of the three major credit reporting agencies: Experian, Equifax, or TransUnion. You can also purchase your FICO score from myfico.com.
5. Apply for the card. You can apply for your card over the phone, online, or using a paper application. In any event, you’ll be asked for some personal information, such as the following:
contact information (such as phone number and email address)
current and previous employers
information on other credit cards
Social Security Number
Part 2 Transferring Your Debts
1. Make a list of your debts. It’s possible that you won’t be able to transfer all of your debts to a new card. For example, the new card could have a $5,000 debt limit. If you have a total debt of $25,000, you must decide which debts to transfer. Make a list of your debts and include the following information:
any penalties or fees that are assessed
2. Select the debts to be transferred. In general, transfer your highest-interest debts to the new card. If you have several credit card debts, try to transfer as much of the balance with the highest interest rate as possible.
For instance, your new card could have a $5,000 limit. You owe $3,000 and $6,000 in debt. The card with the $3,000 balance has a 29.99 percent APR, while the other card has a 13.99 percent APR. You can use a balance transfer to cover the entire $3,000 balance as well as a portion of the $6,000.
Remember that balance transfer fees are deducted from the maximum amount you can transfer.
3. When you open the card, transfer the funds. When you open the card, you can enter the account number and the amount you want to transfer. This makes transferring the balance very simple.
4. Make an online transfer. You may also need to go online and sign into your online banking account. Look for a link that says “balance transfer” or “promotions.”
Enter the credit card account number with the outstanding balance. Then enter the amount to be transferred. You may also be required to provide the payment address for the credit card you are repaying.
5. An access check is used to transfer data. Personal checks resemble access checks. They are, however, linked to your credit card. You can transfer the funds by writing a check to the credit card company.
Be cautious and read the small print. Not all access checks are created equal. Some banks will accept them for balance transfers, while others may consider any use of the access check to be a cash advance. Because cash advances have exorbitant interest rates, make sure the access check counts as a balance transfer.
If necessary, call and ask questions.
6. Money should be deposited directly into the bank. Some credit cards allow you to deposit funds directly into your bank account. Check the card’s terms to see if you can make a deposit at the promotional interest rate. Some banks may consider the deposit to be a “cash advance.”
A direct deposit frees up funds to pay off all types of debts, not just credit card debt. For example, suppose you owe $1,000 to your mother. You can deposit this amount of money into your checking account and then write a personal check to your mother to pay her back.
7. Keep up with your payments. It can take a few days for the transfer to complete. If it hasn’t been processed within 10 days, contact the credit card company. In the meantime, make sure you don’t fall behind on your payments.
For example, your balance transfer may not be completed by the time your next card payment is due. If not, remember to make a payment to avoid becoming delinquent.
Part 3 Paying Off Your Debts Faster
1. Make your payments on time. If you are 60 days late with your payment, the bank may decide to end the promotional period early. As a result, you must remember to pay your bills on time.
2. Make a commitment to pay off the balance before the promotional period expires. Your introductory interest rate will not last indefinitely. As a result, try to pay off the balance before the promotional rate period expires. If you are not being charged interest, calculating how much you must pay each month should be simple.
Assume your card has a 12-month promotional period with a 0% interest rate. You put $3,000 on the card. Over the course of a year, you’ll need to pay about $250 per month (plus the balance transfer fee).
If you are unable to pay the entire balance on time, you should usually only be charged interest on the remaining balance. However, make sure to read the terms of your credit card.
3. Put an end to your spending. If you keep spending, you will only get deeper into debt. Some people spend their extra money on luxuries after seeing their monthly payments decrease. Instead, you should put this extra cash toward paying down your debt faster.
Cut up your credit cards or freeze them in ice to keep your spending under control. You will be unable to use the cards if you do so.
You should not, in particular, use the card with a balance. Instead, put the card somewhere safe.
Don’t close your old accounts after you’ve transferred the balances out of them. This will have a negative impact on your credit score.
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