Is The Debt You Want To Transfer Less Than $10000
A balance transfer is best for less than $10,000 of debt, whether on a single credit card, multiple cards or different types of credit accounts. You typically cant transfer a balance higher than your credit limit, and $10,000 is at the high end for most consumers.
If your debt exceeds $10,000, you can still make progress with a balance transfer. If you have multiple debts, you can prioritize the largest debt with the highest interest rate or you can simply transfer as much debt as you can to the new card. In either case, diligently paying down whatever balance you transfer could still help you save money on interest charges and make it easier to manage your debt.
An Example Of A Good Balance Transfer
Say you have a $3,000 balance on a credit card with a 15% interest rate. If you pay $250 per month, then it would take 14 months to pay off the balance plus $271 in interest. However, if you transferred that balance to a 0% interest card with a 3% transfer fee and made the same payments, then it would take only 13 months to pay off , saving you $181.
Keep Balance Transfer Grace Periods & Transfer Fees In Mind
A balance transfer fee is the amount it costs to transfer the balance from one or multiple cards to another. It ranges between 3%-5% of the balance. This means transferring $2,000 would cost between $60-$100 in transfer fees. Some companies may offer to waive the fee if a transfer is made soon after opening the account.
Many balance transfer cards offer 0% interest on transfers but finance new purchases at a normal rate. This means making new purchases on your card will not only make it harder to pay down debt but could cost you in interest, as well.
For example, your balance transfer card may offer 0% intro APR on transfers but 18% APR on purchases. If you transferred $2,000 to this card, you would be charged no interest until the end of your intro period, and your monthly payments would go to paying down the balance every month.
However, once you made a new purchase with that card, interest would begin to accrue on that purchase alone, and not the balance you transferred. Nevertheless, if you continue making only the minimum payment, the issuer is within its rights to apply this to your transferred balance, which means the interest on your new purchase would continue to accrue until you pay it off in full.
You can make life easier for yourself by not using your card for new purchases. If you must make a new purchase, make sure to pay off the balance in full to avoid self-defeating interest charges. Or consider applying for a card that offers 0% interest on purchases.
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What Is A Balance Transfer And Should I Do One
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Look For A 0% Intro Apr Card
The easiest way to save money on interest is to find a credit card with 0% introductory APRs for 12 months or more. This means that for the first 12 months after you open the account, there will be no interest on any credit purchases. On a $10,000 balance transfer, that can save you over $1,500 in interest . There are quite a few cards with 0% APRs these days including BankAmericard Better Balance Rewards Card and Citi Simplicity® Card No Late Fees Ever .
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How Long Does The Transfer Take
The transfer will reach the other card company by the end of the next working day after you make your request. If you request a transfer outside of business hours that’s after 7pm on a weekday or any time at the weekend or a bank holiday it may take longer. Occasionally we may have to make additional checks, for example, if we need to make sure that your request genuinely came from you. If this is the case, there may be a delay but we’ll put the transfer through as quickly as we can.
Your Credit Score May Be Negatively Affected
Youve worked hard to keep your credit score high, and your credit history unblemished, and now youre doing this balance transfer.
Will it hurt your credit score? Absolutely, it might.
It really depends on your available credit limit, and how much of it is about to be filled with this new debt.
Lets say that you have a credit limit of $5,000, and you transfer $4,000 of somebody elses debt onto your credit card. Youll almost certainly see your credit score go down because youre upsetting the credit utilization ratio, also known as a credit utilization rate. Lenders, you see, like it when people use no more than 30% of their available credit.
So if you have a credit limit of $100 just to go with an easy-to-understand number you dont want to go into debt over $30, because your credit utilization ratio or rate would be over 30%. If you do go over, your credit score may start to drop. In the lenders eyes, if you borrow more than $30, and especially if you borrow $100, youve gone from somebody who responsibly uses credit to somebody who might eventually have a financial problem.
Even if you pay the $100 back within a month, they see you as somebody who borrows right up to their available limit. That may be a sign that youre struggling with money and wont be able to pay it back later.
It may not be fair, but thats how a lender thinks.
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How To Choose The Best Cibc Credit Card For A Balance Transfer
There are several factors to consider when youre deciding to make a balance transfer:
- Promotions: You want to pay your debt off as quickly as possible. So the lower the interest rate, the better
- Promotional period: Check if the offer is long enough for you to pay off your balance. When the promotion ends, the interest rate goes back up. If youre still carrying a balance, youll have to pay a higher interest rate
- Card issuer: You cant transfer a balance to a card thats from the same issuer. For example, if you want to transfer a balance to a CIBC card, it has to come from a non-CIBC card
- No interest-free grace period: Unless youre using a 0% interest rate offer, youre charged interest as soon as the balance transfer is posted to your account
- New purchases: The promotional rate only applies to the balance you transferred. That means for new purchases, youre charged the higher regular rate. Also, any payments you make will go toward your balance transfer first. So the interest on your new purchases will keep adding up until you pay off your balance transfer
The Risks Of Transferring A Balance
If you cannot pay off your credit card bill in full every month, avoid doing a balance transfer. Why? Because if you do not pay off the entirety of your debt by the time that 0% introductory APR expires , you will be hit with a huge interest rate in addition to any other penalties or fees. For example, if you have transferred $10,000 from one credit card to another and then only paid off $8,000 when your intro APR period ends , you will still be charged an extremely high interest rate on that remaining $2,000.
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How To Complete A Balance Transfer
Balance transfers can be completed in a few simple steps. The process varies a bit by card issuer, but is generally the same. The simplest way to complete a balance transfer is online. You can also complete a transfer over the phone by calling the number on the back of your card.
Here’s how to complete a balance transfer online:
Most Cards Charge Balance Transfer Fees
Whether you take advantage of a no-interest offer or simply find a card with a more appealing rate than youre paying now, chances are good your balance transfer wont be completely free of charge. While most issuers wont charge a fee for transferring a balance away from a card, the card to which you transfer that balance likely will.
In fact, the vast majority of credit cards will charge a flat-rate balance transfer fee for each transfer you make to the card. Fees will vary by issuer and card, but typically range from 3% to 5% of the transferred balance.
For the most part, the only credit cards that dont charge a balance transfer fee are offered by credit unions, which will usually require that you become a member to obtain a card. That said, some major issuers that offer 0% APR introductory offers may occasionally include zero balance transfer fees as part of the offer, though the time you have to make the transfer without fees may be limited.
Different cards from the same issuer may charge different fees and/or have different introductory rates. Be sure to check the terms and conditions of a particular credit card offer to determine if youll be charged a balance transfer fee.
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Best Low Balance Transfer Credit Cards In Canada For 2021
If you are carrying a big chunk of credit card debt and are having difficulties paying it off, a 0% or low-rate balance transfer credit card can help you get back on your feet again.
Read on to see how you can use a balance transfer credit card to consolidate your credit card debt, incur lower-interest fees, and pay down your debt faster.
Should I Do A Balance Transfer
If you can manage to pay off a balance in three months or sooner, or you can’t qualify for a good 0% APR offer, paying off your debt as quickly as possible might be the best, most cost-effective option. And if you want a higher limit and don’t mind paying some interest, a personal loan could be a good match you can pre-qualify for one to see how much you could borrow and what interest rate you could get before accepting an offer.
But in general, a balance transfer is the most valuable choice if you need months to pay off high-interest debt and have good enough credit to qualify for a card with a 0% introductory APR on balance transfers. Such a card could save you plenty on interest, giving you an edge when paying off your balances.
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The Advantages To Transferring A Balance
While we already mentioned that you should not transfer your balance unless you can pay off the entire amount in full before your introductory APR period ends, if you do decide to do it anyway, transferring your debt will save quite a bit of money on interest payments.
For example, imagine that you transferred $10,000 from one credit card with an 18% APR to another card with a 12% APR . If this new account has no annual fee and no other fees for making transfers between cards or for going over your limit , then after 15 months when the intro rate expires, you would have paid just under $1,400 in interest.
If, however, you had kept the original $10,000 on that 18% credit card and made only the minimum payments throughout that 15 month period, then at the end of those 15 months you would have paid over $3,300 in interest on that same balance because your total interest charges go up with every payment .
How Will A Balance Transfer Affect My Credit
Some people are hesitant to open a new card with a balance transfer offer because they fear it might lower their credit scores. Depending on your credit history, that might be true in the short term. But a balance transfer can still be a great move for your credit and your wallet in the long run.
Opening a new credit card and transferring a balance to it can affect your in several ways:
- When you apply youll typically get a hard inquiry on your credit reports, which can lower credit scores slightly.
- Opening a new credit card can lower your average age of accounts, which can lower credit scores.
- Having a new credit card will increase your total credit limit, which can lower your this can be good for your credit scores.
- If you transfer several balances over to the new card you can reduce your number of accounts with balances, which can be good for your scores.
Check out credit expert John Ulzheimers Q& A video to learn more.
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Should I Transfer My Balance
Getting a card with a zero-interest introductory rate, especially if that teaser rate is good for 21 months, as some are, can save hundreds of dollars in interest and help you pay off your balance much sooner. As long as youre not seen as risky by creditors, there may be some good balance transfer offers available to you.
Here are some signs a balance transfer might be a good fit for you:
- You have a better paying job after a period of unemployment or underemployment and youre ready to lower your debt.
- Youve committed to stop overspending and youre ready to create a plan to pay off your debt.
- Your credit rating is good to excellent and you think you may be able to qualify for a new card with an attractive balance transfer offer.
Unfortunately, if you have poor credit scores or youre going through a period of financial distress, you may not be able to qualify for a new credit card with favorable balance transfer terms. If this describes you, you may need to consider other options like or perhaps even bankruptcy.
Its up to you to decide whether a balance transfer offer is wise in your situation. Like many tools in your financial toolbox, this one is sharp. Develop a strategy for using it to get what you want and wield it with a healthy supply of discipline.
What Happens If I Still Have A Balance After The Introductory Apr Period Expires
While we encourage you to try to pay off your entire balance before the introductory APR period ends, sometimes that’s not always possible. If you can pay off the balance in a few months, that’s generally your best course of action. But, if you’re worried about the new interest rate, it’s helpful to do the math and find out if the interest you’ll accrue will be less than the cost of another balance transfer. Alternatively, you could consider a debt consolidation loan if you won’t be able to pay down your balance within another balance transfer card’s introductory period.
It’s possible to transfer your remaining balance to a new balance transfer card, but this strategy can be risky. Not only will you take a ding on your credit report when applying for a new account, but you also run the risk of getting denied or not being approved for the amount you need. If you are approved, you’ll also have to pay another balance transfer fee. A balance transfer card works best when it’s used as a short-term debt solution strategy — continuing to transfer balances and pay fees can encourage unhealthy credit habits and may ultimately cost you more money in the long run.
It’s always preferable to create a debt repayment plan to pay off your balance during your initial introductory period, if possible.
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How To Choose The Best Balance Transfer Card
While a balance transfer is pretty straightforward, youll have to look out for a few things before moving your debt to a new card. Here are some tips that can help you find the right card.
Do An After Action Reviewhow Are You Changing Your Behaviors
I alluded to this above, but the deeper root issue here is that you need to adjust your money mindset. That way you dont get into the situation where youll need to do a balance transfer again. For those of you that have read my articles over the past few years, youve probably figured out by now that Im very much against credit card debt. The rates are too high, and it creates spending behaviors that arent sustainable long-term.
If youve found yourself in a position where you have so much debt that you need to do a balance transfer make your primary focus paying off debt and nothing else. I would recommend something like the Snowball Method, which Dave Ramsey advocates.
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