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If you accumulate a large balance on a high-interest credit card, rather than paying interest every month to slowly chip away at your debt, a balance transfer may be a good option for paying it off at a lower interest rate. Many credit card companies offer products with very low or even 0% introductory rates on balance transfers based on your credit score. This introductory rate only lasts a predetermined period of time, usually six to 18 months before the rate increases. A fee is often associated with a transfer and is typically 3% of the balance.

Most cards also have a balance limit that applies to transfers. If you are able to find a new credit card with a very low interest rate, little or no balance transfer fee, a credit limit high enough to accommodate your previous balance and an introductory period long enough to pay off the balance before the rate increases, then a balance transfer is a good idea for paying off your debt.

For example, say you have a $3,000 balance on a credit card with a 15% interest rate. If you pay $250 per month, it would take 14 months to pay off the balance. However, if you transferred that balance to a 0% interest card with a 3% transfer fee while making the same payments, it would take only 13 months to pay off (including the $90 transfer fee), saving you $360. This example is the ideal situation for a balance transfer as you are able to pay off the principal balance faster versus most of your payment going toward interest.

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RELATED TERMS
  1. Balance Transfer Fee

    A fee levied by a credit card issuer when a balance is transferred ...
  2. New Balance

    The new balance is the sum of your previous balance, payments, ...
  3. Credit Card Balance

    The amount of charges, or lack thereof, owed to the credit card ...
  4. Linked Transfer Account

    Accounts held by an individual at a financial institution that ...
  5. Balance Chasing

    The gradual lowering of a consumer’s credit limit by a credit ...
  6. Minimum Payment

    The smallest amount of a credit card bill that a credit card ...
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