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A balance transfer card could potentially save you hundreds of dollars in paying off your debt. (iStock)
Credit card debt has fallen as a result of the coronavirus pandemic, dropping from $1.942 trillion at the end of 2019 to $992.4 billion in June 2020, according to the Federal Reserve.
One reason for this is that the ensuing recession has tightened budgets and reduced spending. Another reason, however, is that credit card companies are lowering credit limits for existing customers and tightening their acceptance criteria for new applications, making it harder to approve cards.
However, if you want to eliminate credit card debt, a balance transfer credit card can be key (and help you save hundreds of dollars in the process). Here’s how to get a balance transfer card and some advice if you want to get out of credit card debt fast.
How do I get a balance transfer credit card?
Balance transfer credit cards usually require good or excellent credit to be approved. A good credit score starts at 670, according to FICO. However, meeting that minimum does not guarantee approval. Your card issuer will also review your credit report, other liabilities, employment and income information, and other factors.
If you’re not sure where your credit is, check your credit score for free with services like Experian and Discover Credit Scorecard. Also, consider using an online marketplace such as Credible for a side-by-side comparison of top balance transfer cards and choosing the right card for you.
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Keep in mind that balance transfer credit cards have many advantages and disadvantages.
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The Balance Transfer Credit Card offers qualifying borrowers a low or 0% first-year APR promotion. These APR periods often last from 6 to 21 months. This will give you enough time to pay off your balance without interest. Depending on how much you owe, these interest savings could be worth more than the new credit card signup bonus.
Some of these cards also offer benefits at the time of purchase. Visit Credible to explore and compare credit card options.
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However, be aware that many balance transfer cards charge a prepaid balance transfer fee. This fee typically ranges from 3% to 5% of the transfer amount and is added to your balance once the transfer is complete. However, in many cases, the interest savings make this fee worth it.
Should I consider a 0% first year APR purchase card?
As a result of the pandemic, many credit card issuers no longer offer balance transfer promotions, instead offering 0% annualized deals on new purchases. This perk may be worth it if you need to make a big purchase or have expenses that you can’t afford right now but can eventually repay.
Maintaining a credit card balance is never ideal, but setting your APR to 0% can provide much-needed relief during financially difficult times. However, paying off the current debt will not help.
If you’re considering a 0% annualized credit card, visit Credible to view multiple 0% credit card options at once.
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Are personal loans a better option?
If debt consolidation is your top priority, you may also consider using a personal loan to reach your goals. With a personal loan, you can use your funds for just about anything, including paying off other debts. In some cases, your application can be completed, processed, approved, and you receive your money the next business day or the same day.
On average, personal loans have lower interest rates than credit cards, so you can save money. And unlike credit cards, personal loans have a set repayment period, so you don’t fall into the minimum payment trap.
Personal loans for debt consolidation can be a good alternative to balance transfer credit cards if you don’t qualify for the latter. However, there is no guarantee that you will get a higher interest rate than the current interest rate. Also, zero percent personal loans don’t exist, so if you have the discipline to pay off your debt quickly, want to maximize your savings, and get great credit, a balance transfer card might be a better choice.
Credible helps you find the best personal loan interest rates and makes it easy to compare all options based on your credit profile.
Should I use a personal loan to consolidate my debt?
You can also use our Personal Loan Calculator to calculate the numbers for your situation.
Should I apply for a credit card or personal loan?
There’s no easy way to tell if a new credit card or loan application is right for everyone. Carefully consider your current financial situation and the financial goals you are trying to achieve, then consider how a credit card or personal loan can help.
Also consider the cost of each option to find the cheapest way to meet your needs. Please note that if you have subprime credit, your options are limited and you may need to address credit issues before applying.
What is a subprime credit score?
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