A balance transfer could potentially save you money, so long as you handle the transaction responsibly and work with a reputable company to execute the transfer. You would typically consider executing a balance transfer to pay off debt faster and/or save money on interest. This could be a good idea for a multitude of reasons, which we will cover today on the blog!
Tonawanda Valley Federal Credit Union is here to help you navigate your financial situation! We are based out of Batavia, NY, but we have recently expanded our field of membership to over 13 counties in the Southern Tier, Finger Lakes, and Central New York! This means you can reap the benefits of our products, services, and shared banking network if you live in one of our 14 counties!
So, let’s break down balance transfers!
What is a Balance Transfer?
A transaction that consists of moving debt from a high-interest credit card to one with a lower interest rate is known as a balance transfer. Typically, someone is aiming to make the debt easier to pay off, and pay more of their cash toward the actual debt, rather than blowing it on interest.
Typically, balance transfers are a privilege of individuals who have proven to have “good” to “excellent” credit scores, but credit scores alone are not the sole reason behind approval for a credit card. Issuers will take other things into consideration, like credit activity, debt levels, and income.
Usually, if someone wants to execute a balance transfer, they won’t be able to do so with the same issuer as the original debt. This means you can’t take the debt from a card at BANK XYZ and transfer it to another card from BANK XYZ. You would need to find another financial institution to set up a lower-interest credit card to transfer to.
Why Would Someone Consider a Balance Transfer?
As mentioned, the main reason to consider a balance transfer is to lower the amount of money you are paying toward a credit card that is killing you on interest. You would move the debt from a higher-interest card (or cards) and consolidate the debt to one source, with a lower interest, to save yourself money over time.
Reason 1- Consolidate Debt & Simplify Finances
If you have balances on multiple credit cards, you can simplify your payments and make your finances easier to manage by transferring the balance to one credit card.
Reason 2- Pay Down Debt Quicker
With less interest means less money you are paying in total over time, and helps to pay down the total amount owed more quickly, which can free up cash for your other financial goals.
Reason 3- Manage High-Interest Debt
A credit card with a large balance that has a high interest rate can be crippling to your finances. Not being able to keep up on payments or missing a payment can impact your credit score and cause you major headaches.
Reason 4- Help Reduce Your Credit Utilization Ratio
One other reason you may consider a balance transfer is to help improve your credit score by reducing your credit utilization ratio. What does that mean? Well, your credit utilization ratio is the measurement of the amount of credit you are using versus the credit available to you. Opening a balance transfer credit card will lower your credit utilization ratio because you’ll have more available credit, and you’ll be paying your balance down without adding interest.
There are a few things you may want to consider before doing a balance transfer.
Now that we’ve covered a few reasons why someone might consider a balance transfer credit card, let’s look a bit deeper at some things someone should look into before they take the leap!
Spending Habits
Having an opportunity to lower your interest rate and pay down debt faster can be a great tool, but it can also be a great responsibility. A balance transfer must be planned for and disciplined in order to be beneficial. If you plan to accumulate a bunch of new debt soon, then it may not be the best idea.
Credit Limit
In order to accommodate the entire balance of your debt, you’ll need to find a credit card with a high enough credit limit to cover it all. So be sure to validate that your credit limit will cover the entire balance. (or however much you intend to transfer)
Balance Transfer Fee
There are cases where you will find credit cards that offer a balance transfer card, but also include fees to do so. Some cards will charge you up to 5% of the amount you intend to transfer. This can be a significant amount if you plan to transfer a high amount of debt. Check the fine print to see if you have a balance transfer fee
All TVFCU Visa Credit Cards have NO annual fee, NO Cash Advance fee, NO balance transfer fee, and a 25-day grace period on all purchases!
In conclusion, a balance transfer credit card could be a good idea for you if you’ve resolved whatever issues resulted in you having a high credit card debt. If you’ve done your homework, you know you have a plan, and you don’t have any major investments or car loans to apply for in the upcoming months, it might be a good time to consider. If you have any questions regarding applying for a Visa credit card or are considering a balance transfer, we recommend you stop by our branch at 10 Jefferson Square, Batavia, NY 14020 or give us a call at (800) 722-8224 to speak with someone today!
