If you have a credit card in your wallet/purse, you’ve undoubtedly heard of a balance transfer.
You’ve probably received nagging offers in the mail, which briefly explain the benefits and urge you to “take advantage.”
Unfortunately, credit card issuers tend to do a poor job explaining their own products, and really seem to push customers without taking the time to clearly define those advantages.
So let’s look at five great benefits of balance transfer credit cards, some of which the credit card issuers themselves may have overlooked.
They Save You Money
First and foremost, balance transfers save you money. Why? Because most of them are 0% balance transfer credit cards, meaning you aren’t charged interest for a set period of time, whether it’s six months or 24 months.
The key here is to find an offer that comes with 0% APR for as long as possible, as you’ll be able to spread payments out over a longer period of time.
They Help You Get Out of Debt
That brings us to the second benefit, getting out of debt. With a 0% balance transfer in place, you don’t pay interest for a certain number of months. During that time, every payment you make on your credit card goes toward the actual balance, not interest. So you can actually get out of debt!
Amazing, I know…the way credit cards typically work, you fall into a trap where most of your monthly payment simply goes toward interest, so you never really get out of debt. This explains those horror stories where a small amount of credit card debt ends up taking 30 years to pay off.
The key here is to calculate what your minimum payment will need to be each month to pay off all your debt before the 0% promotional period ends. So if you’ve got a balance of $1,000 and 12 months of interest-free goodness, try to pay roughly $84 a month so your debt is gone by the time the credit card reverts to the purchase APR, which will likely be much higher.
They Improve Your Credit Score
If you do that, your credit score will likely rise as well since you’ll have a better credit utilization. In short, a credit card with no balance means more available credit and less credit used, which will raise your credit score.
Banks and other creditors don’t like it when you’re maxed out on credit cards, so avoiding such situations will reflect positively on your credit score.
They Can Even Make You Money
Aside from saving you money, balance transfers can actually make you money nowadays. It’s rather surprising, but credit card issuers are back to their old ways again, just a year or so after the greatest financial collapse in history.
Some are even offering cash back bonuses for executing a balance transfer, as opposed to charging you balance transfer fees for doing so. Seems unlikely, but it’s true.
They Teach You a Lesson
Lastly, a balance transfer should teach you a valuable lesson about credit card debt and how to avoid it. When I first got into credit card debt post-college, I had no idea what finance charges were and no real care in the world about accruing debt.
But that all changed very quickly when I woke up one day and had $10,000 in credit card debt. Using balance transfers, I was able to get out of debt relatively quickly and painlessly. And since then, I’ve never carried a balance again.