Should I Make a Balance Transfer?
Q: I’m considering a balance transfer to a card with a lower interest rate. Is that a good idea?
A: Transferring some or all of your credit card debt to a card that includes a low-interest introductory period can help you move toward a debt-free life. However, there are some things of which to be aware. Consider these pros and cons:
1. Lower interest rates for a time
Your biggest push for making a balance transfer is to get a break from the interest that’s added to your balance. Depending on the offer, that could mean a break of six months to more than 18 months. At Truity, you’ll get an introductory 1.99% APR* for the first 15 months for both purchases and balance transfers. Making a balance transfer will allow you to take a real bite out of your debt and make progress toward getting rid of it altogether.
The more monthly bills you need to pay, the higher the chance of missing a payment. When you transfer balances and close those high-interest accounts, you’ll be able to consolidate several different cards into one, decreasing the number of monthly payments you need to make. If you keep the old credit card open and use it to accumulate more debt, the benefit of the reduced interest rate is watered down by a higher overall balance.
Taking this significant step toward paying down your debt may motivate more careful spending habits.
1. You may not have enough time to get your balance to zero
At the end of a predetermined amount of time with your new card, your interest rate on the amount you haven’t paid off will rise. While you may plan on paying down your balance before the interest rate kicks in, you may not be able to do so. With some cards, you may pay a higher interest rate than the prevailing rate, but not at Truity. After our 15-month introductory period, your APR will be variable based on your creditworthiness and the Prime Rate, currently 10.74% - 18.00%. The Terms and Conditions for your new card will spell out exactly what will happen after your introductory period. If you can’t transfer the entire balance for all of your high-interest credit cards, at least transfer the balance from the card with the highest interest rate.
2. Transfer fees
Most balance transfer offers charge a minimum of 3-5% of the balance you’re transferring; Truity’s balance transfer fee it 2%. So, while you may not be incurring much interest, the transfer isn’t always free.
3. Negative impact on your credit score
Having less available credit while using a small percentage of it is considered the smart choice. Opening a new card without closing an old one means you will have more available credit and may lower your score. Also, having lots of open cards will make lenders view you as a risk. To counteract this, consider closing cards you are not using.
Learn more about our competitive rates and calculate your balance transfer savings now at TruityCU.org/balancetransfer.
If you’re sinking in credit card debt but don’t think a balance transfer is for you, we may be able to help. A personal loan might be a substantial first step toward debt freedom. Call or come in today and let us help.