If you’re looking at a huge credit card bill, the thought of using another credit card to pay it off may cross your mind. Especially when you see that you won’t be able to beat the deadline unless you do something fast. This idea can also be known as a balance transfer, it involves moving your debt from one card to another.

But is it really as helpful as it sounds, or does it have some underlying challenges? Before you decide, you should understand all the details and what it means for your financial health. In this blog we will look at the basics and see if using another credit card to pay off your debt is a smart move or not.

What is a Balance Transfer?

A balance transfer happens when you shift a debt or multiple debts from one credit card to another. People somtimes go for this in order to take advantage of a lower interest rate that could be offered by the new credit card, and you may be able to reduce your debt in the long run. Many credit cards offer promotions with low or zero percent interest rates for balance transfers, so, you may want to see it as a smart move.

To perform a balance transfer, you apply for a new credit card. Once it is approved, you inform the new credit card company about the amount of debt you are transferring. They will then handle the process, they will pay off the old credit card and transfer the owed amount to your new account.

Most credit cards charge a balance transfer fee, around 3% to 5% of the transferred amount. So, if you transfer $1,000, you should expect a 3% fee, that would add $30 to your balance.

3 Benefits of Balance Transfer 

Lower Interest Rates

Using a balance transfer has the potential to lower the interest rate on your debt. Many credit cards can give you interest rates for balance transfers that are lower than the rates on existing debts. When this happens, you can reduce the amount of interest you accumulate each month, such that, more of your payment will go towards reducing the principal balance.

Consolidation of Multiple Debts

Balance transfers can also consolidate multiple credit card debts into one account. Debt consolidation means merging two or more debts together to form one debt. Rather than juggling several payments with different interest rates and due dates, consolidation helps you focus on just one. This will reduce the chance of missing payments or thinking about managing mltiple debts. Having a single creditor can mentally ease the burden of debt management, making your financial goals more attainable.

Promotional Offers

Many credit cards offer incentives like no fees on transfers made within a certain time frame after opening the account. This can provide additional savings. Taking advantage of these offers can reduce the cost of your debt and speed up your payoff plan, especially if you are able to pay down a substantial portion of your balance during the promotional period.

Eligibility and Requirements for Balance Transfers

You may not be able to take advantage of a balance transfer unless you meet certain requirements set by the credit card issuer. These may include having a credit score that falls within a specific range, as set by the card issuer. The credit card company will assess your creditworthiness, by taking a look at your credit report. Then they will decide whether to grant your request or not.

Also, the amount you can transfer is usually capped at a certain percentage of your new credit limit, or it might be a fixed upper limit. This means if you have a huge amount of debt, it might be impossible to transfer the entire amount to the new card. You need to also know that not all types of debt can be transferred. While most credit cards will allow transfers from other credit cards, they may not permit debt from loans or other types of accounts to be moved over.

How to Initiate a Balance Transfer

First, you need to apply for a credit card that offers a balance transfer feature. But be sure you have read and understood all their terms, and if they meet your needs. After your application is approved, you can usually set up the balance transfer online through the credit card’s website or over the phone by speaking with a customer service representative.

When setting up the transfer, you’ll need to provide the details of your old credit card accounts—the account numbers and the amounts you wish to transfer. Don’t stop making payments on your old card until you have confirmed that the balances have been fully transferred.

After the transfer is initiated, it may take between a few days to several weeks for the transaction to be completed. During this time, the new credit card company will pay off your old balances, and this will be added to your new account along with any transfer fees. Once the process is complete, you’ll receive a statement from your new credit card issuer indicating the updated balance.

Downsides of Using a Credit Card to Pay Off Another

One of the main downsides is the possibility of falling into a debt cycle. If you transfer your balance to a new card but continue to use the old card without caution, you could end up with more debt than you started with.

Secondly, many balance transfer cards offer low percent interest rates for a limited period. If you’re unable to pay off the transferred balance within this period, the remaining debt will be subject to a much higher interest rate. This may eventually cost you more in the long run if you haven’t reduced the debt during the low-interest phase.

Also, most credit cards charge a balance transfer fee of the transferred amount. This fee adds to your debt load right from the start, which could make the transfer less beneficial.

Bottom Line

While balance transfers can provide temporary relief, they require careful planning and discipline. You have to be strategic in spending and ensure you keep to the agreements of the new debt.

If you’re feeling overwhelmed by your credit card debt and unsure if a balance transfer is the right step for you, you’re not alone. At EmpireOne Credit, we’re here to help. Our team of debt experts can offer personalised advice tailored to your unique financial situation, helping you make informed decisions to regain control of your finances. Don’t let debt weigh you down—reach out to us and take the first step towards financial stability. Your debt can be reduced by up to 80%, and interest will stop immediately. Call us at (416) 900-2324 to schedule a free consultation. Being debt-free feels good!