Many people think they are building their credit scores by using their credit cards and carrying a balance. There is nothing wrong with having a credit card, but you must know how to use it properly. Many times, I see consumers will really high credit card balances and they feel like they are stuck in debt. Let me explain how a balance transfer credit card may be your solution.
1. What Does “Carrying A Balance” Mean?
Carrying a balance simply means to receive a credit card bill and decide only to pay the minimum payment. For example, let say you have a credit card, you swipe for $600. You then receive the bill for that $600 balance credit card and you decide to pay the minimum payment of $35 instead of paying the bill in full. This is carrying a balance. Not to mention, you will be charged around 0.02% interest each month you carry a balance. This means that only a portion of your monthly payment will actually go towards the balance. For example: If your balance is lets say $800, then you could possibly be paying $16/month in interest. This also means that if your minimum payment is $25, then only $9 is going towards the principal of $800.
2. Why A Balance Transfer Credit Card?
In short, a balance transfer card will let you transfer another credit card balance and normally give you 0% interest for a period of time. Some credit card companies give you 9 months and some give you 18 months of the special 0% interest rate. With the 0% balance transfer interest rate, this allows you to transfer your balance and makes payments without it accruing monthly interest. There is a fee associated with this balance transfer and its normally around or at 3% of the transfer amount.
3. How To Complete A Balance Transfer?
Not all credit cards give you this option and some credit cards only let you do this as a new customer to that particular credit card. Also, most companies give you a short window to make the transfer. Normally, during the application process, you will be asked if you are transferring a balance and that’s when you can do it. You can also do it later but be sure to do it during the promotional interest period.
4. What Are The Qualifications?
You are probably thinking “Why doesn’t everyone have a balance transfer credit card?” Well, having a balance transfer card is a privilege and your credit score must qualify. I have seen scores as low as 620 get approved for one. Normally the higher the credit score, the better the odds are for the approval. Also, lenders like to see that potential customers have a fair utilization percentage and cards that are not maxed out. Of course, every lender will be different and the only way you will know for sure is to apply for one and stop paying interest on your balance every month.
The Bottom Line
In short, a balance transfer credit card can save you a ton of money on a monthly basis by simply transferring the balance for 0% during 9 months or less. This will give you the opportunity to pay off your debt a lot faster than before as there is no interest taking your hard earned money away. Sometimes, we don’t know what we don’t know.