A balance transfer card is a handy tool in your debt repayment toolbox if used correctly. This type of card allows you to move your credit card balance (and sometimes other types of loans) to a credit card with 0% interest for a limited period of time, typically 12-21 months.
When I first learned about balance transfer cards, they kind of blew my mind. You can trade your 29.99% interest rate for a 0% interest rate by switching credit cards? What kind of dark financial magic is that?
Of course, this is a promotional interest rate so it’s only magic if you pay off the balance before the 0% interest rate expires. Credit card companies use these promotions to attract customers. They benefit the most if you do not pay off the balance in time because then they get to charge you that 29.99% interest rate.
If you are prepared to beat the credit card companies at their own game, here are four signs that a balance transfer card may be the right fit for you:
1. You have a credit score of at least 680
You typically need a minimum of a 680 credit score to qualify for a balance transfer card and your odds increase the higher your score is. If your credit score is not quite there, you can focus on paying down your balances as is. Often, as you pay down the cards, your credit score will increase and open up this option for you.
A 680 credit score is a good minimum guideline but it does not guarantee that you will be approved, especially in uncertain financial times. For example, earlier on in the pandemic, banks were more discerning with who they would approve. You might have needed a 720 credit to get a balance transfer card.
2. You have less than $10,000 in credit card debt
The credit limit on a balance transfer card is entirely at the discretion of the credit card issuer and there is no guarantee that you will be able to transfer your full balance. It’s not very common to be approved for a full transfer of a balance greater than $10,000.
If you don’t get a limit high enough to transfer the full balance, you can either focus on paying off the higher interest card more quickly or apply for another balance transfer card a few months later. Keep in mind that applying for multiple credit cards in a short period of time can ding your credit score due to multiple hard inquiries.
3. You can fit a regular monthly payment into your budget
The best way to pay off a balance transfer card is to make regular monthly payments in the amount that will allow you to pay off the balance before the 0% interest rate expires. For example, if you transfer a balance of $3,000 and have 12 months of no interest, you should ensure that payments of $250 per month fit in your budget. If you aren’t diligent about making these payments, you could end up with a balance that starts accruing interest after the promotional period ends.
4. You are committed to not using credit cards going forward
If you are getting a balance transfer card as part of a debt repayment strategy, you should commit to not using any of your cards for new purchases. The main purpose of a balance transfer card is to reduce the amount of interest you pay and free up funds in your budget for other purposes like savings. If you start accumulating balances on your old card, all of a sudden you have to allocate more funds from your budget to that credit card which essentially defeats the purpose. You can end up with more debt than you started with if you aren’t careful with your cards.
If you think a balance transfer card will help in your debt repayment journey, check out offers from our B.F.F. Approved Credit Cards page.
4 Signs That a Balance Transfer Card Might Be for You is written by Kylie Lipinski, A Certified Financial Trainer for financialgym.com