A balance transfer is a financial transaction wherein debt is transferred from one party to another party. The debt is now owned by the new lender and payments will have to be made to them.
Essentially, that means you are using another credit card/ loan to pay off the debt of the previous one.
The outstanding amount that you have to pay is the same, but the rate of interest will be lower sometimes even 0% for a small period. Choosing the right balance transfer helps you to save money and repay your debt faster. Here are a few ways balance transfer helps you.
Find the Right Card: To make the most of balance transfer it is essential that you find the right card which provides a low-interest rate possibly 0% on balance transfer. Also, ensure that;
- The card does not charge a balance transfer fee
- Provides a credit limit that can accommodate all the previous debts
- An introductory period which is long so that you can pay off the balance.
- A card which does not charge an annual fee.
The payment that you make should be towards the principal and not only towards interest.
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Merge Multiple Debts: If there are many credit card debts, it becomes difficult to manage all of them. Each account will have a different due date and monthly statements, added to that these accounts will be linked to online accounts. Keeping track of all these is quite challenging especially if you have to make multiple payments every month. The chances of missing payments are very high in such a scenario. One of the ways of handling this situation is through balance transfer where you transfer the debt to a single account and make one payment which saves you a lot of headaches.
Set Auto-payment Option:Set up auto-payments so that you do not miss out on the due date. Plan to pay at least the minimum amount due by the due date to avoid late charges. There are many apps and other resources using which the auto-payment can be set up.
Make a Fresh Start:Don’t make any more purchases on the card as interest will be charged on it. Once you do a balance transfer, ensure that you pay the amount so that the debt is cleared during the interest-free period. That can mean change in lifestyle; you may have to cut down on other expenses while you pay off the debt. The point of the balance transfer is to save money in interest and pay off debt fast and not to move it to another card and run a balance.
Completing a balance transfer is only the first step to becoming debt-free. Ensure that you make all the monthly payments so that the principal amount is paid off. A great strategy is to divide the balance by the number of promotional months provided and pay the set amount each month. That means by the end of the promotional period you will be free of the debt. Make the most of the balance transfer to get away from your current financial troubles.