A balance transfer is a financial resource that doesn't get as much recognition as it deserves. Let's shed some light on balance transfers and go over how you could take advantage of paying down debt with a lower interest rate and get you on track for your next financial goal.
What is a balance transfer?
It's moving high interest debt (usually credit card debt) amount from one account to another account that has a significantly lower interest rate.
How does a balance transfer work?
Let's use an example; you have a credit card balance of $1,200 at 24.99% APR from your favorite retailer and transfer that total debt amount to another financial institution with an interest rate of 10%.
Think of the financial position you would be in with an interest rate of 10% or even 0%. Instead of paying $299.88 in interest with your 24.99% APR account, you'd now pay $120 with your new 10% APR account or even $0 with a 0% APR.
Does a balance transfer hurt my credit?
As long as your credit account from the previous financial institution is kept open, your credit will improve.
Is there a fee to transfer a balance?
Many big banks charge a balance transfer fee between 3% and 5% of the amount that would be transferred. Let’s continue to use the $1,200 at 24.99% APR scenario for another example. When you transfer over to a financial institution with a lower rate but charges a balance transfer fee of 5% be prepared to pay the additional $60. As situations vary from person to person, the fee itself may be the deciding factor for transferring over a balance. Of course, be aware of all fees in order to make sure a balance transfer is truly beneficial to your current financial situation. Remember as a member of our credit union, you receive a lower or no balance transfer fee, one of the many differences between your local credit union and the big banks.
Should I close my old credit card after a balance transfer?
You definitely should not close any of your credit cards. Since balance transfers are linked to a credit card, you would be increasing your credit utilization amount, which would then improve your credit score. As long as you have no balance and are not charged an annual fee, it won't cost you to keep the account.
Does a balance transfer count as a payment?
A balance transfer does not count as a form of payment. You transferred a balance in order to make lower payments.
What is a typical minimum payment on a balance transfer?
Minimum payments vary with financial institutions and its always good practice to clarify with your financial institution.
Do balance transfers earn reward points?
This would also vary between financial institutions. For the most part, financial institutions would not offer rewards points for balance transfers. This would be something to verify with the financial institution when applying for credit cards with the balance transfer feature.
How long does a balance transfer take?
Industry average is between 14 and 21 days to complete the process of paying off your previous lender.
Is a balance transfer the right financial resource for me?
A balance transfer can be very beneficial for those who have manageable debt with high interest rates. The objective is to take advantage of any promotional 0% periods to pay down as much debt as possible which in turn, is going towards paying down the principle rather than any interest.
SafeAmerica Credit Union can help. If you're interested in transferring a balance you have at another financial institution, we're currently offering 0% APR on purchase and balance transfers through September 30, 2021 when you open a new credit card through March 31, 2021.
How SafeAmerica Credit Union's balance transfers work:
- Balance transfers often take 2-3 days compared to industry standard of 14 to 21 days.
- We're currently offering 0% interest through September 30, 2021 on balance transfers done from January 1, 2021 to March 31, 2021
- We charge no balance transfer fees on our balance transfers.
To learn more on how you can take advantage of balance transfers and start paying less interest on your debt, click below.