You should pay off a loan with a balance transfer credit card if you are able to qualify for a card with a low enough introductory balance transfer APR and fee, lasting long enough for you to pay off most (if not all) of the balance by the time the card’s higher regular APR takes effect. Most credit cards’ regular APRs are higher than what most loans charge. Just bear in mind that you might not be able to transfer the full balance remaining on the loan, depending on what limit you get approved for on the balance transfer card.
Paying off a loan with a balance transfer credit card can be a good idea because you may be able to pay off the loan balance faster than you would otherwise, and you can save money by paying less in interest. As long as you qualify for the right balance transfer credit card - i.e. one with a low balance transfer fee and a lower interest rate than your current loan - and have a plan to repay the debt before the intro APR period ends, transferring the balance from the loan to a credit card can be a smart move.
Before you apply for a balance transfer credit card, however, consider a few things about your personal debt situation. There are some instances where paying off a loan with a balance transfer is not a good idea - or where it simply can’t be done.
Things to consider before paying a loan with a balance transfer:
Do you qualify for a good balance transfer credit card? Most 0% APR balance transfer credit cards require good credit or better, so check your credit score before applying for one.
Is your loan with the same bank as the balance transfer credit card? If so, the balance transfer won’t be approved. Credit card companies do not allow balance transfers with debts already owed to them.
How much is the card’s balance transfer fee? Some credit cards don’t have balance transfer fees, but most do. And usually, it’s between 3% and 5% of the transferred balance, which can be significant for big debts.
What is your plan for repayment? Balance transfer credit cards usually come with low or 0% promotional APRs, which expire after a period of time. The lack of interest is why a balance transfer is a good idea. If you don’t pay off your balance before the promotional period ends, however, your balance will likely be subject to a high regular APR. And if you miss a payment, the 0% APR period may be forfeited. So it’s important to use a balance transfer calculator to plot your repayment strategy before you do your transfer.
Will your loan debt fit on your new credit card? Keep in mind that you won’t know your credit limit until you get approved for the credit card. If your balance transfer card doesn’t have a high enough limit to transfer all of your debt, you’ll have to change your balance transfer plan or do a partial balance transfer. Some cards list a minimum credit limit in their terms, so vet your credit card before you apply.
All in all, whether or not you should use a balance transfer to pay off a loan is a decision best made after considering specific details about your situation. Whether or not you qualify for a balance transfer credit card is also important. If you don’t qualify for one, there are several alternatives to balance transfers that may help you pay off your debt.
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