Tips For Minimizing Your Overall Debt
If you are struggling to make your debt payments, whether they be on your credit cards or personal loans, it could be a sign that your debt is beginning to spiral out of control. It might be time to actively reduce your debt to live more freely.
Here are some ways in which you can start paying off your debt to attain the financial freedom you deserve:
Promotion Periods Run For A Set Time
From time to time we may have special offers, with different promotion periods and transfer fees.
The special offer comes with a promotional rate and usually lasts for a set period. Its best to pay off the transferred amount within your promotion period, as the cards cash advance interest rate, currently 21.74% p.a., will apply to any unpaid amount after the promotion period ends.
Once your balance transfer is paid in full, your card will revert to the standard purchase rate.
How To Do A Credit Card Balance Transfer
How do credit card balance transfers work? After getting approval for a card with a 0% interest balance-transfer offer, find out whether the 0% rate is automatic or depends on a credit check. The next step is determining which balances to transfer cards with high interest rates should come first.
Next, calculate the transfer fee, which is typically 3% to 5% . Is there an amount cap on the fee? If not, that can make transferring larger balances worthwhile. Also check the on your new card before you initiate a transfer. The requested balance transfer cannot exceed the available credit line, and balance-transfer fees count toward that limit.
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Have I Considered All The Options
If youre struggling with monthly payments or looking for savings, balance transfer credit cards and personal loans arent your only options.
- Nonprofit credit counseling organizations may offer debt management plans, or DMPs, if you have credit card debt. Counselors may be able to negotiate lower interest rates, payment amounts and waived fees, and youll make one payment to the counseling agency each month.
- You might want to refinance your debt using the same type of loan. For example, you can refinance a student loan with a private student loan or an auto loan with a new auto loan.
- Rather than moving debt to a new company, you could try negotiating with your current creditors to get a more manageable payment plan or lower rate.
Other options, such as taking on side gigs or finding ways to cut expenses to pay off the debt sooner, can also help. Although, you could use these in combination with one of the options that will decrease how much interest you pay to double-down on your repayment efforts.
How Do I Get A Balance Transfer Credit Card
Before applying for a balance transfer credit card, check your credit reports and and gather the personal information youll need to provide, including your income and Social Security number.
Next, compare the fees, APRs, perks and credit requirements of different balance transfer credit cards. Our list of the best balance transfer cards is a good place to start there, you can compare offers and apply for a card that fits your needs.
Lastly, if you are curious about how your numbers work in this kind of scenario, test it out using Bankrates credit card balance transfer calculator.
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How Much Does A Balance Transfer Cost
Most issuers charge a balance transfer fee of around 1% to 5% of the amount you transferred. The fee is usually added to your balance. So if the fee is 3% and you transferred $2,000, youll be charged $60, bringing your total to $2,060. Sometimes, an issuer will waive the fee or offer a lower fee as part of a promotion.
Benefits Of Credit Card Balance Transfer
Following are the benefits that a user gets by making a credit card balance transfer
- Quick and Easy: If the customer is able to meet the eligibility criteria of a balance transfer then the banks will allow the customer to transfer the balance from one credit card to another banks credit card within a short period of time. This is a timely help for the customer to deal with the credit card debt.
- Multiple Transfer: It makes more sense to transfer all existing credit card debts to the new card and most banks offer this facility. Now the borrower can payback all debts from one place.
- Incentives: A credit card balance transfer also comes with incentives like an interest free period and lower interest rates which offer some respite to the borrower.
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Best For Those With High Credit Scores
Balance transfer credit cards allow you to transfer your balances from an existing high-interest credit card to a new card with a lower interest rate. Balance transfer cards often come with a 0% introductory APR for a certain period of time, and some cards may even waive any balance transfer fees during the promotional period. To use this debt payoff method, youll first need to apply for a new credit card and get approved.
Transfer Loan To A Balance Transfer Card
An instance in which it may be wise to pay off a personal loan with a credit card is in the case of moving your loan debt to a balance transfer card. By doing this, you could take advantage of a 0% APR introductory period reducing the amount of money you need to pay in interest.
Not every balance transfer credit card allows you to transfer a personal loan, but many credit card issuers do. Qualifying balance transfers of personal loan debt onto a credit card account with a low introductory period interest rate could allow you to save money and pay off your loan early.
Many of these credit cards have a balance transfer fee, but the additional fees could be well worth it with the interest savings if you can be sure of the credit card balance before the promotional period rates end.
Things to Keep In Mind When Considering a Balance Transfer
- Some balance transfer cards only allow you to transfer credit card debt, so you will want to be sure that you find a credit card issuer that provides loan balance transfers on at least one of their credit card products.
- The interest rate could increase rapidly once the promotional period ends on a balance transfer credit card, so it is crucial that you pay down the balance of your loan amount before the APR rises.
- The amount that you owe on your personal loan and any balance transfer fee required cannot exceed the credit limit on the credit card you plan to transfer the balance to.
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You Need A Higher Amount To Pay Off Your Debt
You may also be able to pay off more of your debt with a personal loan compared to a balance transfer card. Balance transfer credit cards may have a credit limit that wont be enough to cover what you want to transfer. Card issuers arent always upfront about what the credit limit is for their accounts, but $5,000 to $10,000 is considered high. They might cap transfers at a certain percentage of the credit limit , as well, which can be limiting.
And heres another factor that might limit how much you can transfer: the balance transfer fee, usually 3% to 5% of the transfer amount, generally is considered part of the new balance. So the more you transfer, the higher your fee all while having to fit within that percentage limit.
With personal loans, you probably dont have to worry about such limits. You can expect to see loan amounts ranging from $2,000 to $35,000.
To Rebuild Credit Which Is Better A Personal Loan Or Balance Transfer Card
Whether you get a balance transfer card or a personal loan, making your payments on time should help improve your credit score. Paying your transferred balance on a balance transfer card helps bring down your credit utilization ratio, which has a positive effect on your credit score. A personal loan, on the other hand, helps bring down your credit utilization ratio and adds to your credit mix. Both factors have the potential to improve your credit score.
Benefits Of A Balance Transfer
The purpose of a balance transfer is to help you pay off your debt. This means paying as little interest as possible. For example, if a card has an introductory rate of 0%, you have a chance to pay off your balance without accumulating more interest.
Balance transfers can also help you manage your payments. If you have balances on multiple credit cards, consolidating your debt onto one card means fewer payments to keep track of.
Paying your debt off faster can also boost your credit score. Balance transfers can help you reduce your overall debt, which also gives you more available credit on your card. Both outcomes are good for your credit score.
Drawbacks To Using A Balance Transfer
- Balance transfers often come with a fee. The industry standard has been 3%, but fees of as much as 5% of the amount transferred have become common.
- If you have lots of debt to consolidate, your balance transfer will be limited to the cards credit limit.
- Balance transfer credit cards typically only require a small minimum payment each month, making it possible for you to leave a substantial balance when the 0% intro APR period expires.
- The 0% intro APR period is relatively short compared with the duration available for personal loans. Even the best balance transfer credit cards have 0% intro APR periods for 18-21 months, while you can obtain a personal loan with a term of 72 months or more.
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Transfers To Existing Cards
Balance transfers can also be done with an existing card, especially if the issuer is running a special promotion. This can be tricky, however, if the existing card already has a balance that the transfer will only increase.
Suppose a cardholder owes $2,000 on a card with a 15% APR before they transfer a balance of $1,000 from a second card. The balance transfer rate offered is 0% for six months. The cardholder pays off $1,000 in six months, but because the 15% portion of the credit card debt is paid first, the 15% APR rate for six months applies to the $2,000 that was untouched by payments. Meanwhile, the card the $1,000 was transferred from has an APR rate of 12%, representing a loss of 3%.
Also consider what adding a big sum to a card will do to the that is, the percentage of available credit that’s been usedwhich is a key component of your credit score. Say you have a card with a $10,000 limit and a $1,250 balance. You are using 12.5% of your credit limit. If you then transfer $5,000, creating a total balance of $6,250, you’re now using 62.5% of your credit limit. This increase in a balance on one card could hurt your credit score and ultimately cause the interest rate to rise on this and other cards. This may, of course, be mitigated by the $5,000 lower balance on the higher-interest card from which the transfer was made.
What Debts Can You Transfer To A Credit Card
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The good news is that many different types of debts can be transferred to your credit card. A personal loan balance transfer can be done, along with auto loans, student loans and even other credit cards.
The tricky part is that which types of debts can be transferred vary by issuer. For a personal loan balance transfer, for example, you can use Citi, Bank of America, Barclays, Capital One or Discover but not Chase or American Express.
Heres the debt transfer policies you need to know from eight of the largest credit card issuers.
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Is A Balance Transfer The Same As A Personal Loan
While there are similarities, a balance transfer is not the same as a personal loan. For starters, balance transfers are linked to credit cards, whereas personal loans are not. A balance transfer credit card might be a suitable option if you wish to pay off high-interest credit card debt in a relatively short period of time. Personal loans, on the other hand, tend to serve as better long-term solutions.
If you transfer an existing credit card balance to a new card with a 0% APR offer, you need to pay off the entire amount before the end of the promotional period to avoid interest charges. After this period, any outstanding amount starts accruing interest at the cards regular balance transfer APR.
If you wish to pay off your credit card debt over a prolonged period of time or if you need to repay a large debt, you may consider looking at what personal loans have to offer. While personal loans tend to come with higher credit limits than credit cards, they also can come with a comparatively low APR.
Depending on your situation, you can get either a personal loan or a balance transfer to repay existing credit card debt. In both cases, eligibility and the interest rates you get depend on your creditworthiness.
Balance Transfers and Personal Loans at a Glance
- Balance Transfer
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.
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Common Questions About Transferring A Personal Loan To A Credit Card
Is there a limit to how much I can transfer?
Yes. Most providers allow you to transfer up to your credit limit or a percentage of your credit limit.
I want to consolidate my debts. Is it better to use a debt consolidation loan or a balance transfer credit card?
It depends on your circumstances. However, debt consolidation loans generally provide a fixed interest APR thats applied from the time the loan is approved. Balance transfer credit cards, on the other hand, can provide a low or 0% introductory APR before the standard APR applies, effectively providing you with an interest-free period.
Consider a range of loan and credit card options before deciding on the one that meets your needs.
Does the promotional rate end if I miss making a repayment?
It depends on the provider. Carefully read the terms and conditions before you apply to avoid accidentally cutting your promo period short.
If I transfer my personal loan to a credit card, is my debt considered personal loan debt or credit card debt?
Successfully loan transfers are considered credit card debt.
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Considerations Of A Nab Balance Transfer
- NAB offers two types of balance transfer, each with different rates and fees:
- The promotional balance transfer is available on the NAB Low Rate Card only.
- The standard balance transfer is available on all NAB credit cards, excluding the NAB StraightUp Card.
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You Could Always Use A Combination Of The Two
Its certainly possible to use both methods of debt consolidation to your advantage. For example, lets say that you have $20,000 in high-interest credit card debt, but you know that theres no way you can pay it off during a 0% intro APR window with a balance transfer credit card.
You could choose to transfer a manageable amount of the debt onto a balance transfer credit card with a 0% intro APR, and then obtain a personal loan for the rest. This way, youre avoiding interest on as much of your debt as possible, but without the risk of a high credit card interest rate kicking in on the rest before you can pay it off.
The point is that while both methods have pros and cons, you dont necessarily have to choose one or the other. The best solution to your debt management could be some combination of the two.