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Explore the latest happenings at Kirtland FCU and learn about important topics from around the financial world. Here’s your insight!
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How To Manage Debt with a Balance Transfer

01/01/2020
Ashleigh, K-Team

You’ve certainly heard the term before. But what IS a balance transfer, and why should you consider taking advantage of one to help you manage your debt? Well, settle in—welcome to Credit Card Balance Transfer 101.

Let’s start by defining terms. A credit card balance transfer is a simple concept: moving balance of a credit card to another credit card. Usually, the new credit card is offering a promotional rate on the transferred balance, make it an attractive move for those with high balances on higher interest rate cards.
 
We’ve just wrapped up (haha!) the holiday season. If you signed up for a store-only credit card during your shopping in order to take advantage of that shiny promo rate, you will want to pay that balance off or transfer the balance to another card before the promotional rate ends. The average interest rate on a store-only card is a whopping 27.52% APR! Carrying a balance on a card with that kind of interest rate is bad news for your monthly budget.
 

THE PROS

A lower initial rate
Most credit card companies offering balance transfers will have a lower promotional rate for the transferred balance for a period of time. But these rates DO expire, so keep in mind how long you’ll be making payments based on that rate, and what your rate will be after the period is over.

Consolidation of payments
Transferring more than one balance to a single card can make it a lot easier to keep track of your credit card bills. Or should we say bill—singular—since you’ll have one balance and one payment to think about.
 
Long-term savings
The true benefits of a lower rate lay in the long-term reduction of interest fees. Take a look at the chart below. The credit card on the left—we’ll call it the ‘old card’—has a higher interest rate that equates to higher minimum payments and a much higher cost over the life of the balance when compared to the newer, lower interest rate card on the right. You can see that on a store card with a $1,000 balance, you’ll end up paying back $1,353.37! With a rate like the one you could get on the Independence Credit Card, you pay back only $1,069.02. And if you transfer the balance to a card below that is offering a promotional rate on the balance transfer, your costs are lowered even further.
 
  Old Credit Card Independence
Credit Card
Balance $1,000 $1,000
Interest Rate 27.52% APR 7.25% APR
Monthly Payment $50 $50
Time to Payoff 28 months 22 months
Interest Payments $353.37 $69.02
Interest Payment Savings $284.35
 

THE CONS

Fees
Many credit card companies offering balance transfers will charge fees for the transfer, usually a percentage of the transferred balance, so that needs to be taken into account when considering a balance transfer. For example, if you have a $5,000 balance, a 3% fee would add $150 to your balance right off the top. (The Independence Credit Card has ZERO balance transfer fees!)

The non-promotional rate
There is a lot more to consider about your new card than just the interest rate. How long does the promotional rate last and what is the interest rate after the promotional period ends? If you plan to pay off your balance before the promotional period ends, that would maximize your savings. But if you don’t, you risk being hit with a much higher interest rate again.
 
More fees
Many credit cards charge an annual fee, so be sure to read the fine print of any credit card before initiating a balance transfer. A few cards do have no annual fee (including the Independence Credit Card!) If your fees and new interest rate are going to cost you more money than you’ll save in a balance transfer, it’s probably not the right card for you.


KEEP IN MIND

Any new purchases you make on your new card will not be subject to the low promotional rate. And the rate you DO get will be based on your credit worthiness.

Think a balance transfer may be right for you? Consider the Independence Credit Card from Kirtland FCU! There are NO balance transfer fees, NO annual fees, and you can qualify for an interest rate as low as 2.99% APR on the transferred balance through December 31, 2020!
 
Apply before March 31, 2020, to get started! Unstuff your wallet and take control of your debt with a balance transfer!

Get started now!
 
*APR = Annual Percentage Rate. Annual percentage rate and balance transfer rate is based on credit history and other factors. If you do not qualify for the type of card for which you have applied, you may be offered credit under different terms and conditions. The special balance transfer promotion is valid on transferred balances conducted between January 15–March 31, 2020. Balances transferred to your credit card by March 31, 2020 and will remain at the introductory promotional rate until your December statement cycle. On your January statement, all remaining transferred balances will convert to your current Annual Percentage Rate. Membership eligibility required. See a representative for complete details. Chart above is for illustration purposes only.
 
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