Should you get a balance transfer credit card? Experts weigh in

This content is sponsored by PenFed Credit Union, federally insured by NCUA.

You may have heard about a balance transfer – but have wondered about the benefits and if it’s a good move for you. The experts at PenFed Credit Union have tips for when to use a balance transfer credit card and pay less in interest in the process.

A balance transfer is a type of credit card transaction in which debt is moved from one account to another. The goal is to move high-interest debt to a card with a lower interest rate/APR. Doing this provides some benefits: it allows you to consolidate debt into one monthly payment, pay more toward the principle and pay less on interest, said the experts at PenFed Credit Union.

When you transfer debt to a balance transfer credit card, you can pay less in interest right away. For that reason, a balance transfer credit card can be a valuable tool for those looking to get out of debt, Bankrate points out.

Balance transfers are usually done to help pay off credit card debt, but there are other types of debt that can be moved around, too, such as personal loans, auto loans, student loans and more.

Balance transfer credit cards offer special incentives to customers such as a low or 0% APR for a year or more. If you select a card with a 0% introductory rate, make sure to check what the rate will be after the promotional period, PenFed notes.

“Customers who pay down their balance during this introductory period can pay less in interest charges,” PenFed’s experts said.

Doing a credit card balance transfer is simple. PenFed recommends starting the process by reviewing your credit report and fixing any errors. Your credit score will determine the kinds of offers you’ll receive and the cards you’ll be approved to use, so you want to make sure the information is correct.

Next, you’ll want to research the options. Make sure you know which balance transfer credit cards have the lowest interest and fees, too, PenFed said.

When shopping for a good balance transfer credit card, the ideal ones have a 0% introductory APR offer for balance transfers, a $0 annual fee and a low balance transfer fee, according to NerdWallet. Most lenders have balance transfer fees to consider. It’s typically a 3% fee based on the total amount your transfer or a fixed dollar amount based on the lender.

“In addition to these key features, look for a long introductory period on your card so you can maximize the benefits of low to no APR. Although these periods can last as little as six months, it’s not uncommon to find introductory periods of 12, 15, or 18 months (depending on your credit),” PenFed said. A great example of a credit card with both balance transfers and purchase introductory rate is the PenFed Gold Card.

Credit card rewards can be a boon, but check the fine print because typically balance transfers are not eligible for rewards, PenFed pointed out.

You can apply for a balance transfer credit card the same way you would any other card, PenFed said. While some lenders will let you request a balance transfer as part of the application process, others will require you to be approved first.

To request a balance transfer, you’ll need information about the account you’re transferring debt from. Those details include your account number, the amount of debt you’re moving and the issuer name.

“Stop using the credit card you’ve transferred your balance from but continue making payments on it until your balance transfer is complete,” PenFed’s experts said.

All that’s left to do is begin paying on your new card! It can take between a few days to a few weeks before you balance transfer is complete, but when it’s done you will see your total debt plus transfer fees on your new credit card.

Balance transfers can impact your credit score in the short term. Keep in mind opening a new credit card, even if for a balance transfer purpose, will result in a hard credit inquiry – that means a creditor has requested to look at your credit file to determine how much risk you pose as a borrower. It also means that hard inquiry shows up on your credit report and can affect your credit score. Additionally, opening a new line of credit will lower the average age of your accounts, affecting your score as well.

“If you have a longer credit history, these effects might not lower your score too much. Plus, if you transfer your balance and start making progress on paying it off, your credit could improve substantially in a few months anyway,” PenFed said.

Once you open your new balance transfer credit card, keep your old card’s account open, PenFed said. Closing accounts can hurt your credit score; keeping them open will raise the average age of all your credit accounts.

A balance transfer is just one way to pay more toward the principal. Other financial strategies such as creating a personal budget and planning for ways to pay off credit card debt may be more promising options in the long run, PenFed said.

“Remember, a balance transfer is just one part of a savvy plan to take control of your finances. Review your budget, check your spending, and prioritize paying down your balance,” PenFed said. “Use your introductory APR to make on-time monthly payments and you’ll be amazed by how much you’ll decrease the interest you pay.”

Read more about balance transfer credit cards on PenFed Credit Union’s website. PenFed Credit Union is federally insured by NCUA.

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