We often hear the term Balance Transfer (BT). It is a way to reduce debt, the same as a credit card debt consolidation loan. What exactly does it mean? How does it work?
What is Balance Transfer (BT)?
As the name implies, it is to transfer the balance of one credit card to another credit card. So why do we do this? There are mainly the following reasons:
- Oneself a certain credit card debt is too much. You may not pay the debt for a while, and the interest rate is high. So it might be a good idea to move the debt to another card with a lower interest rate or no interest rate and pay it off slowly.
- You need to keep cash for a certain period of time. So get an advance on your credit card, then transfer the balance to another credit card with a zero interest rate, and pay it back later.
In any case, Balance Transfer is the transfer of arrears to achieve the purpose of paying less and paying no interest.
Method of Balance Transfer
- Apply for a 0% APR on your credit card: New credit CARDS usually have a period of time when they don’t charge interest on what is owed on the card, and the 0% APR varies from 8 to 21 months per card. Generally, the CARDS of the same issuing bank cannot be transferred to each other. For example, if you want to Transfer out the Balance of one card, you should not apply for another card as the transfer object.
- Application for Balance Transfer: According to the provisions of the application card, the application for Balance Transfer shall be initiated within the specified time.
- Wait for the Balance Transfer application to be approved: After the application is approved, the credit card issuing bank that accepts the alance will usually directly help you repay the previous balance.
- Save and pay before the 0% APR expires: Pay off the balance before the 0% APR expires on your new card, otherwise new interest will accrue.
Is Balance Transfer free?
It isn’t. Generally, each Balance Transfer will receive 3%-5% of the total amount or $5 (whichever is larger).
What kind of credit card is suitable for Balance Transfer?
As can be seen from the above introduction, our purpose is to transfer debt, so the new credit card had better have the following features:
- The longer the concession period, the better.
- There is no annual fee.
- Low handling fee for doing Balance Transfer, or there are other ways to avoid handling fee (3%-5% is not too much…).
It would be nice to have the following features:
- There is a card opening reward.
- Rewards for daily consumption (e.g., cash back, bonus points, etc.)
Repayment after Balance Transfer
Note that the application for Balance Transfer does not mean nothing needs to be done. Although the APR is 0%, the Minimum Due for each month still has to be repaid! Otherwise you may lose the 0% APR bonus, or even more if you encounter a punitive APR. So it’s important to be aware of that.
If you are facing immediate financial difficulties, instead of paying interest every month, consider applying for a Balance Transfer. It will be a temporary relief from debt and a better way to plan your financial plan. So that interest doesn’t snowball out of control.
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