How a balance transfer can help you pay off credit card debt

November 14, 2022

What you need to know about credit card balance transfers

  • Balance transfers can help you pay off debt faster and save money.
  • Approach your balance transfer with a repayment plan, and you’ll improve your credit score.
  • Balance transfer credit cards are good for more than just credit card debt.

With warnings of a recession beginning to ring true and inflation exacerbating high interest debt, now is a good time to pay down your credit cards. Reducing high interest debt can help you boost your savings, improve your credit and trim savings as budgets get tighter.

For months, expert economists and the Federal Reserve (Fed) have been warning an economic recession is near. In an effort to slow inflation, the Fed has raised interest rates multiple times this year, driving mortgage rates from 3% at the beginning of 2022 to nearly 7% in November. Plus, layoffs across the tech industry could threaten a number of different industries.

Balance transfers are an effective way to reduce your debt while cutting down on the cost of repayment. It might sound counterintuitive to open a new line of credit in order to pay off existing debt, but balance transfers allow you to take advantage of promotional interest rates typically offered to new card members.

Ever heard a credit card advertised as having 6 months of 0% interest? You could use that interest-free period to upgrade to the latest iPhone, or you could take advantage of the 0% annual percentage rate (APR) to pay down high-interest debt without accruing more.

How do credit card balance transfers work?

Balance transfers are incredibly easy. All you need to do is select a credit card like one of SECU’s many competitive-rate options. Through a balance transfer, you can move debt from a high-interest credit card to a new card with a more manageable APR.

Using a balance transfer to pay off debt comes with numerous advantages, including:

  • Pay off debt faster
  • Spend less overall to pay down debt
  • Consolidate multiple high-interest credit cards
  • Simplify your monthly payments

Whereas many financial institutions charge customers a balance transfer fee of 3% to 5%, SECU members do not have to pay a fee. Once your balance has been transferred to your new line of credit, you can take advantage of promotional rates to pay down debt faster. Even if you’re not able to pay down your debt within the introductory period, you can reduce your overall expenditure as long as you aim for a card with lower interest rates.

Ready to transfer your balance to SECU? Get started now!

What happens to your old credit card after a balance transfer?

How exactly your balance transfer will take place depends on the financial institution. While in some cases you’ll simply transfer existing debt balances to a new credit card, some financial institutions provide customers with a written check with which to pay off their debt. That balance is then added to the balance transfer card.

You still have access to your old credit card after a balance transfer. Some balance transfer credit cards place a limit on the amount of debt you can move to your new card. If there is a balance remaining on your original credit card, it will continue to accrue at the same rate. Your new balance transfer credit card will contain the debt transferred from your old credit card as well as any transfer fees.

How do balance transfers impact your credit score?

You might think that opening a new line of credit while paying off current debts could harm your credit score. While that’s technically true, it’s not the whole story. Any time you apply for a new line of credit, it impacts your credit history which could ultimately affect your score. However, when used to strategically pay down debt, a balance transfer credit card can improve your credit score in the long-term. 

To put it simply, opening a new balance transfer account could cause your credit score to drop a few points in the beginning, but once you start reducing your debt, you’ll reap the rewards. As long as you avoid taking on new debts and take advantage of the lower interest rates to pay down your debts faster, your credit score will eventually improve.

Who should use a balance transfer to pay down debt?

Anyone looking to make their debts more manageable could benefit from a balance transfer. Like any other line of credit, the cost and whether it’s a viable solution will depend on your current debts and what APR you’re offered.

To maximize the potential benefits of a balance transfer credit card, we recommend consumers:

  • Be prepared to pay off your existing debt within the promotional APR period.
  • Compare the cost of a balance transfer to the cost of paying off credit card debt at its current APR.
  • Avoid using current lines of credit for new purchases.

Other methods to pay off high interest debt

Balance transfers are a great way to get out of debt if you’re financially stable enough to pay off your debt within a short period of time. Fortunately, there are other ways available to you if a balance transfer is not a viable option.

Pay off debt with a personal loan: Do you have debt spread across numerous accounts? You can take out a personal loan to pay off your existing debts. Personal loans enable you to consolidate multiple accounts into one simple payment with a fixed interest rate.

Because the interest rate on personal loans is typically lower than credit cards, you can enjoy the same benefits of a balance transfer. Learn more about consolidating your debt with a personal loan.

Leverage your home equity to pay off debt: Much like balance transfers, and personal loans, home equity loans allow you to leverage low interest rates to reduce the cost of debt and speed up repayment. Learn more about getting a home equity line of credit (HELOC).

Seek debt management support with SECU

Are you working to pay off debt so you can afford a car loan? Or maybe a mortgage for your very first home? Even if you’re just looking to free up some extra wiggle room in your budget, transferring your existing debt balance to a SECU credit card can help you achieve your financial goals.

Here’s how it works:

  1. First, you need to be a SECU member. Not a member yet? Don’t sweat it. Becoming a SECU member is quick and easy. Join the SECU family to start taking control of your financial future.
  2. Apply for a SECU credit card. Once you’re approved, you can open up your new credit card and initiate your balance transfer.
  3. In 2 to 3 weeks, your transferred balance will appear on your new SECU card.
  4. Start making your payments and get on the road to debt repayment and an improved credit score!

Unsure if a balance transfer credit card is the best option for you to pay off debt? Schedule a free financial wellness checkup to review the debt repayment options available to you. Our experts will help you craft a budget-friendly plan to pay off your debt.

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