How can balance transfers help by reducing interest rates for over one year?
Balance transfers is one of these financial terms we secretly wish we understood. While many people go throughout their life blindly in debt, some financially savvy savers manage to conquer their credit card debt. Then one day, you hear about a 0% balance transfer offer and begin to wonder, isn’t it a great idea to simply transfer your balance, and reduce your interest rate to the bare minimum, or even to zero? To better understand this offer, think of balance transfer as a game where banks are trying to win customers over. Knowing about your debt, they are willing to offer extra incentives just to pull you into their clients base. Because it’s one of those offer you really lose nothing by availing of, today we decided to discuss it in greater details.
So, what card companies are offering a balance transfer and what exactly is a balance transfer? It is the process of switching a credit card debt or a loan balance to another credit card. These balance transfer offers you often receive in the mail or read about online, can by accomplished by simply calling your current credit card company and telling them the amount you would like to transfer from either credit card or loan balance. Once the process is complete, you can get as low as 0% interest charged on the amount you transfer.
The benefits of transferring your loan are obvious, you will no longer be paying interest on a certain amount of your debt, and while it may sounds like a big saving at first, over time, you will begin to see that you are paying less to your credit card company and hundreds of dollars can turn into thousands of dollars in savings. Suppose, for example, you owe $2,000 on your credit card with a standard 15% APR, prior to transferring a balance of $1,000 from your other card. If you are offered 0% for the first six month, credit card debt is paid first so you will save a few percents off the total amount over a course of 1 year, because your new credit card has a 12% APR and 0% for the first six months. (0% six months + 12% remaining six month means an average interest rate of 6%, if we talk about a 1 year span).
What is important to remember, when transferring your balance in order to reduce interest rate?
When it comes to financial operations, calculator is your best friend. You know your debt, and your abilities (or inabilities) to pay off your debt or loans, so you are the only person who can tell, which solutions are ideal for you. You can reduce your interest rate and subsequently relief your monthly debt payments, but only if you “play your cards wise”. Be sure to check every offer and make sure it will suit your personal financial needs, without dragging you into further expenses. Also, something 3%-6% is charged on the amount transferred, so make sure you take all the factors into account, prior to taking any steps.