In today’s fast-paced world, it is not uncommon for individuals to find themselves burdened with credit card debt. The allure of easy spending and delayed payments can quickly lead to a mountain of unpaid bills. However, there is a solution that could grant you some breathing room and help you regain control over your finances − consolidating credit card debt through balance transfers. A balance transfer involves moving the outstanding balance of one credit card to another, typically with a lower interest rate. This method can significantly reduce the overall interest you pay on your debt and allow you to pay it off more efficiently. Here are a few advantages to saying “yes” to credit card balance transfers.
Make one payment. According to Fortune magazine, the average American has four credit cards. Managing multiple credit card accounts can be exhausting. Transferring the balances of all your cards to one, can simplify bill payment and debt management.
Reduce interest. Want to pay off debt faster? Consider moving your high-interest credit card balances to a card with a lower interest rate. Another way to reduce interest rates is through promotional balance transfer offers. Though these promotional rates can be used to entice consumers to apply, they are also frequently used as loyalty bonuses to existing cardholders. For maximum debt reduction, make larger than required payments.
Build a longer credit history. Credit cards that offer to help build your credit don’t always offer the best terms, but the history they can provide can help build a good credit score. If you are carrying a balance on a high-interest credit card, transferring the balance to a card with lower interest can help you save money. To continue building your credit history, you can still keep the original credit card open. Your new credit line can decrease the use of credit which can also have a positive effect on your credit score.
Keep old accounts open and avoid inactivity fees. Credit cards must be used regularly to ensure the credit line remains open. Also, some credit cards will charge an inactivity fee for not using the card. Transferring balance(s) to an infrequently used card can help avoid inactivity fees and provide ongoing payment history. These protections can help you save money on debt repayment and ensure credit history remains intact.
Reduce usage on small credit limits. Creditors consider a responsible use of credit to be using less than 30% of credit limits. Credit use accounts for 30% of a W credit score. If a credit card has a small limit, using a balance transfer to move all or part of the balance to a card with higher limits may provide a credit score boost.
Progress starts with strategy. Balance transfers are just one of many ways to reduce debt, and each person’s situation is a little different. However, one thing remains the same − making a debt reduction strategy helps increase the chance that debt payoff is permanent. Balance transfers can play an important part in debt reduction, but only when used as part of a larger financial plan.
Article by Tina Herndon, TFCU Financial Educator
About the author
Tina Herndon began her financial career managing three native not-for-profit loan funds and completed a financial counseling session with each loan closing. She served as the Financial Education and Training Manager for the national nonprofit financial counseling and education service, BALANCE, where one of her responsibilities was main presenter. In 2022, she joined the Financial Empowerment team at Tinker Federal Credit Union (TFCU) as a Financial Educator. Learn more about TFCU’s Financial Education team here.