Here’s What Happens When You Transfer Your Credit Card Balance

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If you use your credit card frequently, it might not take long for the balance to pile up. Read on for the pros and cons of transferring your credit card balance. 

Credit card debt is one of the most common types of debt in the world. Many people find themselves struggling to pay their debt off, especially when they have high interest rates. This is where transferring credit card balances come in, by moving your debt to a low or 0% APR credit card. Here are the pros and cons of transferring your credit card balance.

How to transfer your card balance

The process is relatively simple. You need to apply for a new credit card with a lower interest rate. Many credit cards offer a balance transfer promotion. Once approved, you will be given a credit limit, and the new credit card company will pay off the balance on your old credit card or cards.

Your debt amount stays the same, but you may be charged a balance transfer fee by the new card. You’ll still be responsible for paying off the balance on the new credit card, but you will save money on interest payments moving forward.

Pros of transferring your credit card balance

The main benefit of transferring your credit card balance is saving money on interest charges. For instance, assuming you have a $10,000 debt on a 20% interest credit card, you would be paying $2,000 yearly in interest charges.

However, transferring this balance to another card with a 5% interest rate means you only pay $500 annually, saving you $1,500 per year on that balance.

A balance transfer has the potential to boost your credit score by allowing you to pay off your debts sooner than you would on your own. However, it’s important to stay focused and committed to paying down your debts once the transfer has been made.

If you have multiple credit card debts, consolidating them through a balance transfer can simplify everything. Instead of making separate payments to various lenders, consolidating all your debts means you’ll only have one payment to make every month.

Cons of transferring your credit card balance

There are also some potential risks to be aware of. One risk is that you could end up accumulating more debt. If you transfer your credit card balance to a new credit card, but continue to use your old credit cards, you could end up with even more debt. It’s important to have a plan to pay off your debt and avoid accumulating more debt in the future.

Another risk of a balance transfer is that you could damage your credit score if you don’t manage your debt properly. When you apply for a new credit card, it can have a temporary negative impact on your credit score.

Additionally, if you close the old credit card account after transferring the balance to a card with a lower limit, this can further reduce your available credit and increase your credit utilization ratio. It could also lower the average age of your accounts. These factors can negatively impact your credit score.

Transferring your credit card balance can be a smart move if you have a plan to pay off your debt and avoid accumulating more debt. By taking advantage of a lower interest rate, you can save money on interest charges and pay off your debt faster. The new card may also come with a sign-up bonus, such as a chunk of cash back or extra points you can earn by completing a minimum spend in a given period of time after account opening. However, it’s important to weigh the potential risks and benefits before making a decision. If you are considering transferring your credit card balance, make sure to do your research, compare different credit card offers, and have a plan in place to pay off your debt.

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