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What is a balance transfer card?

On Behalf of | Dec 5, 2020 | Firm News

There are multiple ways to manage credit card debt: consolidation and specific payment methods like the snowball or avalanche method are popular ways to do so. Another method of managing credit card debt is to use a balance transfer card.

A balance transfer card is a specific type of credit card designed for moving debt from a different credit card to the balance transfer card. According to NerdWallet, balance transfer cards can help you pay off debt quicker since a good balance transfer card has low fees.

How does this work? 

Ideally, you will want to find a balance transfer card with 0% introductory APR, $0 annual fee and a 0% balance transfer fee (or, alternatively, some viable way to avoid paying a transfer fee). If you can locate a balance transfer card with favorable fee structures, you can then transfer your credit card debt from another account with high interest to the balance transfer card.

In this way, you can pay down the debt efficiently without having to pay interest or other credit card fees.

What are some potential problems? 

In some situations, balance transfer cards come with hefty transfer fees. You will need to do some math to figure out if paying the transfer fee is worth the lower interest rates (in some situations it still is). It is also a good option for people who have so much debt that they will not be able to pay it down quickly. A good rule of thumb is that if you believe you can pay off a balance in 3 months or less, getting a balance transfer card is probably not worth it.