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Is a Balance Transfer Right for You?

Is a Balance Transfer Right for You?

A balance transfer occurs when you choose to move or transfer the balance you’re carrying on one of your credit cards or small loans to a different, lower-rate credit card, in the hopes of paying less interest on that existing balance. Your old debt doesn’t go away; you basically pay it off using the new card and then work to pay back the same balance on the new card at the new (hopefully lower) interest rate.

Take this example from NerdWallet:

Let’s assume you had a credit card debt load of $10,000 and that the card is charging you 15.99% interest. With this level of debt, your monthly minimum payment would be about $232 (this depends on how your credit card issuer calculates your minimum payment, but for the purposes of this example, we’ll use $232). Even if you were making twice the minimum payment, it would take you 26 months to pay off the debt and you’d wind up paying $1,867 in interest.

But if you transferred your balance to a card that offers 0% interest for 15 months and continued paying twice the minimum, you’d pay off your card in 22 months with only $162 in total interest payments. That’s a savings of $1,700!

When It Might Be Worth The Switch

To start, you’ll want to look for cards that offer much lower interest rates than the rate on your current card or small loan.

You’ll also want to look out for Balance Transfer Fees, which are fees charged by the new card provider to take on that existing balance. Sometimes (like right now with Clearview’s Visa Balance Transfer offer ), credit unions and other card providers offer no balance transfer fee, which is another great reason to consider switching.

If your new rate would be somewhat lower than your existing rate, but the new bank changes a hefty transfer fee, you might not enjoy much of a savings after all.

If you do decide to transfer a balance, here’s one final tip from NerdWallet:

Don’t cancel your old card — this could hurt your credit.

Leave the old card open for a while without a balance, so your credit report shows that you paid it off without using it again right away.

Want To Learn More?

For more information about credit, and how loans and credit cards affect your credit history and credit score, check out clearviewfcu.org. Although it can be confusing, it’s important to understand how all your financial decisions affect the big picture of your future.

If you’re ready to transfer, consider Clearview’s no-fee balance transfer. (You can request a transfer online or by mail.) Or call us at 1-800-926-0003 if you have questions. We’ll be happy to help.
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