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Newbie Question

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Giovanni20
Member

Newbie Question

What's a balance transfer? How does it work? Only 20 yrs old so I dont know much more than just using my cards and etc.

Message 1 of 5
4 REPLIES 4
Josh2942
Established Contributor

Re: Newbie Question

A balance transfer is when one creditor pays your debt off with another creditor and becomes the owner of your debt. People usually do balance transfers to lower interest cards when they are financing a purchase or open a new trade line that will give them 0% on the balance transfer if they need a little more time. Balance transfers often save you money in the long term vs the short term. Unless you get a transfer without a balance transfer fee it may not be worth it. However occasionally creditors offer free balance transfer or you can open another TL that gives 0% interest on new balance transfers. The Slate card by Chase is really good along with the Citi simplicity.
Jaguar F-Type R Loan 50K Balance
Goldman Sachs Signature Loan $29,000 TU 750 score pulled at time of loan.
Student Loan Debt $1,500
Credit Card Debt $300 1>% of $166,700
FAKO Transunion 723 Equifax 744
What's in my wallet? Chase Sapphire Reserve, Chase Freedom Unlimited, and AMEX Blue for Business
Message 2 of 5
Giovanni20
Member

Re: Newbie Question

Darn it, wish I knew this earlier. I have 9 cards and could have saved some money from it.

 

Thanks for your answer. 

Message 3 of 5
asulaw
Established Member

Re: Newbie Question

So let's say you have a balance on a card you currently have and for the simiplicity, let's say it is a $2,000 CL with a $1,000 balance.

If you get an offer, or take an offer for a balance transfer MOST of the times they will offer you a 0% APR for so many months usually 12, 15, or 18. Your current card let's say hypothetically has a 15% APR. That means over the course of the year you will be charged $150 on $1,000 if you do not pay it in full. Obviously this calculation is off because you have to consider you would make minimum payments and what not.

Let's now say we do the balance transfer, again MOST of the time on offers they will tell you the fee for transfering is 5% or 3% all depending on the card. The Chase Slate for instance is nice because they do a $0 fee for transfers in the first 60 days. So now let's say that offer was a 0% APR for 18 months and it was a 5% fee. That means you will transfer $1,000 (if you elect to) to this new card, that new balance will be $1,050. You will not gain interest on your $1,050 over 18 months. Once that period of time expires you will gain interest again.

 

This is a strategy used by consumers to help pay down debts that they may have on cards, I use this strategy and it has saved me a lot of money. It also is nice because you can get some new lines of credit so your utilization is not staying high. You want to keep a low utilization to increase your scores.

Wells Fargo Student - $2,300 / Discover It - $2,000 / Chase Slate - $1,500 / Marriott Premier Rewards - $5,000 / Citi ThankYou Preferred - $2,000 / AMEX TrueEarnings - $1,200 / Target RedCard - $300

Total CL: $14,300
Util: 28%
Message 4 of 5
Ghoshida
Valued Contributor

Re: Newbie Question

My 2 cents on Balance transfer (BT):

 

It is not the best idea to move aroud debt. Think of getting a BT only when you cannot pay your balance in full every month on your credit card and when you are paying interest on those balances. 

 

Even then, before you take a BT offer, make sure you reduce your monthly spending. You need to save up in order to pay off the balance you have transferred to another card, in addition to paying off your current card. 

Message 5 of 5
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