There are a ton of credit cards out there, but they can all fit into a few categories. We’re going to discuss one of those today.
So, it’s scenario time first. You have a ton of credit card debt at a high APR, and you’re starting to struggle with your payments. What’s the problem? Interest keeps piling on top of your principal balance, increasing the size of your payments each month. If only there were a way to reduce that APR, then you’d be able to make larger payments towards the principal balance.
Well, it’s your lucky day if you’re reading something new right now. There is, in fact, a way to reduce the APR on your credit card, allowing you to make those larger payments. It might make no sense at all, but you need to open up another credit card. What kind of credit card? It is called a balance transfer credit card.
Here’s the deal. Credit card companies recognize the necessity to reduce APR for indebted consumers, so they offer balance transfer credit cards that are specifically meant for you to pay down debt at a lower rate. They get your business as a new customer, and you get some reprieve from interest payments, allowing you to cut into your debt.
How do they work? Well, for starters, you apply for one. They usually are advertised as credit cards with low or no balance transfer APR. Typically, a balance transfer credit card will come with a zero percent APR on balance transfer transactions (a balance transfer is when you transfer balances between credit cards) during the first six to 18 months.
With a balance transfer card, you can transfer the old credit card balance to this new card at a low or no APR. Thus, your high APR problem is solved. You can save money and get out of debt sooner by paying down debt on a new card.
There are a couple of ways that you can mess this process up. It isn’t going to solve all of your problems right off the bat. After all, you still have to pay the debt off using your OWN money. If you open up a balance transfer card, then you better be ready to pay off that debt before the introductory APR period ends. If you don’t, you’ll just be stuck with a balance a potentially high APR yet again.
One more note on how you can screw it up: if you get a balance transfer card and just start spending like crazy with it like any other credit card, then you’re not doing yourself any favors. In fact, you’re liable to make the situation even worse by adding debt to the pre-existing balance.