Are you struggling to pay a credit card bill that has a high-interest rate? Would you like to make a single monthly payment with a reduced interest rate? If so, then you may benefit from a balance transfer. Debt resolution experts provide a crash course on balance transfers so that you can decide if they are the right option for your financial situation.
What Is a Balance Transfer?
As the name suggests, a balance transfer involves transferring or moving debt from one account to another brand-new account. The goal is to open a new credit card account with a significantly lower interest rate. After the new card is active, you must transfer the existing debt to your new account. Even though the outstanding debt is the same, you will be paying a lower interest rate.
Many credit card providers offer special promotions that include extremely low-interest rates (some offer zero interest rates) for a set period. With that said, it is important to keep in mind that many companies charge transfer fees as high as 5%. If you want to take advantage of a balance transfer, you must be prepared to pay off most of the debt before the promotional period ends.
Benefits and Risks of a Balance Transfer
Balance transfers can be a sound recourse when taken wisely. With that said, they are by no means your golden ticket to total debt freedom.
When used correctly, balance transfers can reduce the amount of interest you pay on a credit card debt. However, getting the most out of this approach means that you must pay off any debt before the promotional period ends. You should also calculate potential savings before opening a new card.
Lastly, know yourself and use your best judgment accordingly. Will a new credit card tempt you to spend and, consequently, create more debt? Do you intend to leave your current card active even after transferring the outstanding balance to a lower interest rate card?
It is important to answer these questions before conducting a balance transfer. Failing to do so can leave you floundering even deeper in debt.
Balance Transfer vs. Debt Consolidation
Chances are you’ve probably heard the phrase debt consolidation during your quest for financial freedom. While debt consolidation is similar to a balance transfer, the two are not exactly the same.
Debt consolidation involves taking out a large personal loan with an interest rate that’s lower than that of your current credit cards or loans. You then take those funds and pay the outstanding debt. This will leave you with one monthly payment that is potentially cheaper than the sum of all previous payments. However, depending on your credit score, you may not qualify for ideal interest rates.
A balance transfer is technically a type of debt consolidation. However, it achieves its end through a new credit card account instead of a personal loan. With a balance transfer, you are relying on getting a zero or low-interest promotional period to achieve your goal. If the new card has a high limit, you could transfer the balance of multiple cards to consolidate your monthly payment.
Still not sure if a balance transfer is right for you? Don’t worry; you are not alone.
If you want to obtain financial freedom and get out of debt, Resolvly can connect you with a consumer protection attorney who will help you achieve financial freedom and overcome unsecured debt.
About Resolvly
Resolvly is a Florida-Bar-approved lawyer referral service that helps clients nationwide connect with consumer protection attorneys who specialize in debt resolution. Founded in 2015, the Boca-Raton-based company has become an industry leader by helping thousands of Americans find the right legal-based solution to reduce or eliminate their unsecured debt. Resolvly helps with credit card debt, personal loans, private student loans, business debt, medical bills, and vehicle repossessions.
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