Can I Use Balance Transfer To Pay Off Loan

Applying For A Balance Transfer Card

Before applying for a new card, make sure you know all of its terms, which the credit card company is required to publish on its website. Those terms include the interest rates for balance transfers and new purchases, as well as how long any introductory rate lasts.

When in doubt, contact the issuing company for the card you want. Know your FICO score before you call, and be ready to discuss any negative items in your . With this information, the customer service representative can tell you about the offers that are available to you.

Investopedia publishes regularly updated lists of the best balance transfer credit cards.

Is It Even Possible

Before getting into whether you should pay off your student loans with a 0% credit card, youll have to determine whether you can.

The first thing to know is that the lender or loan servicer is unlikely to just let you pay your student loan with your credit card the same way you’d use your card to buy, say, a T-shirt. Federal regulations generally prohibit it. Plus, it would qualify as a purchase, which means the lender would have to pay processing fees on the transaction.

If you want to use a credit card to pay your student loan, you’ll have to do it as a balance transfer. In this type of transaction, you’re not really putting the payment “on the card.” The bank that issued your card pays your lender directly. That is, instead of you writing a check to the student loan company, the issuer does it. Then the card issuer adds the amount to your credit card balance.

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That Introductory Rate Wont Last Forever

In the vast majority of cases, balance transfer introductory interest rates dont last indefinitely. You may have access to the promotional rate for just six months, 12 months, or 18 months, which isnt a lot of time.

After the introductory balance transfer rate expires, you are stuck with the credit cards regularly interest rate, which is commonly much higher than the rate youd have on a personal loan. The average credit card interest rate falls near 17 percent.

If your personal loan interest rate is lower than your credit card interest rate after the promotional rate expires, you could find yourself paying more in interest as you pay down the balance or hit with a higher payment down the road. Most credit card payments are a percentage of your balance along with the interest charges. When the interest rate kicks in, your monthly payment will almost certainly go up, and this can have a major impact on your budget.

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Con: High Apr After The Introductory Offer Expires

In general, credit cards have much higher APRs than personal loans. The average APR for personal loans was 10.28% as of January 31, according to Bankrate. For the same time period, the average that assessed interest was 16.44%.

If you open a balance transfer credit card, make sure you pay it off during the introductory period, advises Shon. Otherwise, interest rates will be so high your debt will be even more astronomical.

Qualifying Isnt Always Easy

If you dont have a balance transfer credit card and were considering opening one to address your personal loan debt, its essential to understand that this isnt a guaranteed option. Many balance transfer cards require borrowers to have at least good credit, usually with scores of at least 680 or 700. Some wont approve anyone with less than excellent credit scores, typically around 750 or higher.

Even if you can get a balance transfer card with fair credit, the terms usually dont work in your favor. The promotional interest rate may only be available for six months. Plus, the credit cards regular interest rate after that will apply, and its commonly pretty high.

Additionally, opening a new card also impacts your credit score. Youll have a hard pull on your credit report , a lower average account age, an adjustment to your total available credit, and more shifts that all cause your credit score to change.

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Balance Transfer Vs Personal Loan: A Quick Comparison

Both balance transfer credit cards and personal loans might help you lower the interest rate on your debt and consolidate your outstanding payments into a single one, so youll have fewer bills to manage.

As we mentioned, balance transfer cards that offer low introductory balance transfer APRs may be an appealing option. If you can move your existing balances to the balance transfer card and pay off the debt before the introductory period ends, you might be able to avoid interest altogether and therefore pay off your debt faster and cheaper. Just keep in mind that the intro balance transfer offer is temporary and that your APR will increase after that period of time.

If you need a larger loan amount, or prefer to pay back what you borrow over a longer period of time, a personal loan may make more sense for your situation. Additionally, the interest rate the loan offers may be lower than a credit cards standard rate. Thats especially true if you got the credit card when you had less-than-stellar credit and are paying a sky-high APR.

With all that in mind, lets take a quick look at how balance transfer credit cards and personal loans differ. These are common ranges and terms, but you may find an option that differs from whats shown below.

The Hidden Costs Of Balance Transfers

In theory, transferring the debt to a low-interest credit card could result in huge savings. However, when you perform a balance transfer, you arent actually paying anything off youre merely relocating debt from one pocket to another. Therefore, you will not reduce the overall balance at all, and you will not avoid any interest costs that you already incurred.

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How To Apply For A Personal Loan Balance Transfer

Bank of America, Citibank and Discover allow you to transfer debt balances from credit cards, store cards, lines of credit and personal loans to a new credit card.

If youre eligible, youll follow a general series of steps to apply online and transfer your personal loan balance:

Some providers offer balance transfers for existing customers. Learn more by logging in to your online account or calling the number on the back of your card.

Make Extra Payments With Any Disposable Income

After you create your household budget, use your budget surplus to make additional payments on your credit card. Did you get a tax return or earn a bonus at work? Put it toward your credit card debt. Its tempting to use that money for something else but paying off debt now means you can have more disposable income later.

Sometimes people think its better to put disposable income into savings than to put it toward debt. We have a Debt Payment vs Savings Investment Calculator to help you decide which option is the best for you. This way you can see numbers that are customized for your debt.

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How Long Does A Balance Transfer Take

It typically takes anywhere from two to seven days for your transfer request to be completed, but it depends on the issuer of the card youre seeking to transfer a balance to.

For example, American Express says it typically takes from five to seven days for a transfer from another bank to be completed but it could take as long as six weeks. Citibank says on its site it can take from two to 21 days and Chase says most transfers are complete within two weeks.

The exact time for your transfer will likely depend on both the bank youre transferring the debt to and the bank youre transferring the debt from.

What Is A Money Transfer Card

If youâre paying a high interest rate on loans or overdrafts, a money transfer credit card can eliminate your interest payments. It works in a similar way to a balance transfer card: it allows you to transfer existing debts to the card and repay them at 0% interest for a set period of time. But the crucial difference between a money transfer credit card and balance transfer card is that the former allows you to transfer cash to your current account to pay off your overdraft or other debts.A balance transfer card, on the other hand, only allows you to transfer debts from one credit card to another. Find out more with our guide to balance transfer cards.

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What Fees Will I Need To Watch Out For

Balance transfer cards usually charge you a balance transfer fee of 3% to 5% of the amount transferred, often with a minimum fee of $5 to $10. You can sometimes avoid this fee by finding a card that doesnt charge the fee, or temporarily waives it for new cardholders. Finally, one thing to keep in mind is that some balance transfer cards also charge an annual fee.

Personal loan lenders may charge you an origination fee that typically ranges from 1% to 8% percent of the amount you borrow. Although its less common, personal loan lenders may charge an application fee or a prepayment penalty if you pay off the loan early. The fees vary from one lender to the next, so comparison shopping for a loan may be worthwhile.

How Much Debt Do I Have

Theres no guarantee that a balance transfer card or personal loan will approve you for a credit line or loan amount that will cover all your current debts. Generally, you wont find out how much youre approved for, if at all, until after you formally apply.

With a personal loan, you might be able to get an estimate by applying for prequalification. While this option doesnt guarantee approval , it can give you an idea of whether you might be approved. Lenders also have minimum loan amounts, which could help you hone in on which loan may be a good fit.

If youre going the credit card route, its worth noting that some credit cards have a minimum credit limit. But generally, youll need to apply and get approved to find out what your credit limit will be.

Even if you cant pay off or transfer all your current debt, you could start by eliminating your debt with the highest interest.

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Which Balance Transfer Card Should You Choose

If you are interested in doing a balance transfer, its important to choose the right balance transfer card for your financial situation. Here are just a few of the best balance transfer cards on the market today:

• The U.S. Bank Visa® Platinum Card offers a 0 percent introductory offer for 20 billing cycles on both balance transfers and purchases, followed by 14.74 percent to 24.74 percent variable APR.
• The Citi® Double Cash Card comes with a 0 percent APR on balance transfers for 18 months, with 14.24 percent to 24.24 percent variable APR thereafter.
• The Wells Fargo Reflect Card offers one of the longest 0 percent introductory offers on the market. 0% intro APR for 18 months from account opening on purchases and qualifying balance transfers. Intro APR extension of up to 3 months with on-time minimum payments during the intro and extension periods. 13.24% to 25.24% variable APR thereafter.
• The Citi® Diamond Preferred® Card offers 0 percent intro APR for 21 months on balance transfers from the date of first transfer. After that, the variable APR will be 13.99 percent to 23.99 percent. Balance transfers must be completed within 4 months of account opening.

Cons Of Debt Consolidation Loans

• Theyre not a magic bullet. Youre in debt because youve been spending beyond your means. If that doesnt change, debt consolidation wont work.
• If you fall behind on payments, late fees may await, and missed payments are likely to lower your credit score. Make sure the monthly payment is something you can handle comfortably.
• For secured loans, longer repayment terms mean paying more in interest over time, and you risk losing the collateral you put up to qualify for the loan.
• Unsecured loans allow lower borrowing amounts, have higher interest rates and no tax write-offs.

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What Is A Personal Loan For Debt Consolidation

In addition to using a balance transfer credit card, you can also get a personal loan for debt consolidation, which is a new loan you take out to pay off an existing debt balances.

The new loan might be an unsecured loan, a secured loan, or a P2P loan. Whichever option you choose, a personal loan should ideally come with a lower interest rate or smaller monthly payments, which can reduce the costs of borrowing or make payments more manageable. An added benefit: Since you’re combining several loans into one, you’ll only have to keep track of one monthly payment.

Debt consolidation loans sometimes come with a fixed interest rate, so they make more sense than a balance transfer when the introductory period on the balance transfer card is too short. For example, a 0% APR offer for three months might not be useful if you need three years to pay down your debt.

Are There Other Ways To Pay Off Your Loan

Taking out a credit card in order to pay off a loan may make financial sense, but there are other ways you could pay off debt without taking out more credit.

Using your savings

Dipping into your savings can leave a bitter taste, but if it could considerably reduce your debt and interest charges, it might be worth doing. But remember – paying off a loan earlier than agreed may also come at a price, so check the early repayment charges beforehand.

Switching to a different loan

You may be able to apply for another loan with a shorter term, a lower interest rate, or a combination of these two factors. This can save you money in the long run, but make sure you can meet the larger monthly repayments.

Extra payments

You may be able to repay your loan faster by making extra payments each month – known as overpayments. This method can be helpful for people who are unable to pay off their loan in full but want to lessen their debt. If you wish to make overpayments, you need to tell your lender that you are doing so, and there may be charges for this.

This wont be an option if you took out a loan before February 2011. People who took out a loan after February 2011 can repay up to £8,000 in extra payments over a 12-month period without being charged.

A debt consolidation loan

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So What Should You Do Instead

In general, it doesnt make much financial sense to pay off debt with more debt. If youre looking to decrease a car loans impact on your bank account, youre probably better off re-evaluating your finances from the ground up. There is no secret to getting right side up on auto loans, and incurring more debt is not the answer.

Instead, think about establishing a budget and exceeding minimum payments. This way, you will dig yourself out of debt sooner. Also, refinancing is a good way to decrease the financial burden of interest payments. Seeking out can help you regain control of your FICO score, and once you do, you can refinance at a lower interest rate.

We are led to believe credit cards are a magic wand an inexhaustible bank account that can fix any financial issue. Unfortunately, this is not the case, so be wary of paying off loans with credit cards.

As an alternative, consider addressing the root of financial hardship and reestablish yourself through tried-and-true measures such as budgeting and credit repair rather than rolling the dice on incurring additional credit card debt.

Understanding The Benefits Of Balance Transfer Loans

Balance transfer loans have a lot of benefits that other options dont, including:

• Lower rates: Interest rates on balance transfer loans may be lower than regular cash loans.
• Easier debt consolidation: If you want a loan to help pay down or consolidate multiple other debts, balance transfer loans can take some work off your plate. You add up to 12 creditors to pay, and we send the money to them directly.
• Fixed rates: LendingClubs balance transfer loans come with fixed interest rates, so you wont have to worry about rate changes or promotional periods like you might with a credit card.

Plus, any loan money left over after your creditors are paid goes directly to your bank account.

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