Balance transfers are worth it if they save you money by getting you a lower interest rate, preferably 0% for a certain number of months. A balance transfer is most likely to be worthwhile if you have good credit or better, you qualify for one of the best balance transfer credit cards, and you use the savings to get out of debt faster. Transferring a balance should not be an excuse to overspend.
You should always aim to transfer a balance to a credit card that has a significantly lower APR than your current credit card or loan. There are credit cards with 0% introductory APRs for a certain number of months, which are generally available to people with good or excellent credit. It’s also ideal to get a card with a low balance transfer fee, though an especially long 0% period can offset a higher fee.
When they won’t tempt you to spend more
If the balance you’re transferring is from another credit account, the transfer frees up the credit line on that account, allowing you to spend more. If you’re not careful, you could end up increasing your debt to unmanageable levels.
When other debt payoff options aren’t better
There are a number of other ways to pay off debt, like taking out a personal debt consolidation loan or tapping into your home equity. You should explore multiple options and their costs before deciding on one.
When you have a solid payoff plan
Before you make a balance transfer, you should have a plan for how much money you will put aside each month to pay it off. Ideally, you should pay off the full balance or as close to it as possible during the card’s introductory APR period, if it has one.
In many cases, a balance transfer will be worth it, but there are also some situations where it won’t be. You can learn more about the pros and cons of balance transfers on WalletHub.
Balance transfers do not affect your credit score directly. While balance transfers themselves aren’t reflected on credit reports, and thus aren’t directly used to calculate credit scores, balance transfers can change your financial picture in ways that could alter your credit score temporarily.
You can use WalletHub’s free credit score simulator… read full answer to forecast how a balance transfer might affect your credit score in particular. You can also learn more about how balance transfers affect credit scores in general below.
Here’s how balance transfers affect your credit score:
High credit utilization rate:
It’s best to use less than 30% of a credit card’s credit limit. However, a balance transfer can wind up consuming much more than that, which isn’t great for your credit score.
When you apply for a balance transfer card, the issuer will pull a copy of your credit report. Known as a hard inquiry, this will lower your credit score slightly, but only temporarily.
Average age of accounts:
A new balance transfer card will reduce the average age of your credit card accounts, which could knock a few points off your credit score.
Future credit score increase:
Your credit score should recover with time. Making payments on time is crucial to maximizing your credit score after a balance transfer, however, as is avoiding serious debt in the future.
To stay on top of your credit throughout every stage of a balance transfer, sign up for a free WalletHub account. You’ll get daily credit score updates, 24/7 credit monitoring, and personalized credit improvement advice.
The least costly way to pay off your credit card debt is to pay off the card with the highest APR first, which is called the avalanche method. By allocating any extra funds to the card with the highest interest rate, while still paying the minimum for other debts, you will cut down on the amount of interest you pay. … read full answer
Least Costly Way to Pay Off Your Credit Card Debt
Make a list of your credit card debts, including current balances, interest rates, and monthly minimum payments.
Sort them by interest rate, putting the highest rate first.
Determine how much money you can allocate to debt payments each month.
Pay the minimum monthly payment for the balances with the lowest interest rates, then put as much money as possible toward the balance with the highest interest rate.
Once you pay off the card with the highest interest rate, use the funds previously set aside for that card to focus on paying down your next most expensive balance
Repeat steps 1-5 until you pay off all of your credit card balances.
If you want to figure out how long it will take you to pay each balance, and how much interest you’ll pay over a specific amount of time, check out WalletHub’s credit card payoff calculator.
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