Did a sweet opening bonus cause you to overlook a sky-high credit card interest rate? If so, you may have found yourself with a sizeable chunk of debt and unable to catch up. Don’t stick around in a credit relationship that doesn’t benefit you. Instead, apply for a balance transfer and secure a lower rate while you pay off debt.
5 FAQs About Balance Transfers
1. What Is a Balance Transfer?
A balance transfer allows you to move the balance of one or several cards onto a new or existing credit card with a lower interest rate. This effectively streamlines budgeting, as your debt may have been previously siloed across multiple financial institutions with separate login information.
2. Why Are They Beneficial?
The most obvious reason to apply for a balance transfer is to acquire a lower rate while you pay down debt. When you only make minimum payments each month, you’ll have to pay interest based on an annual percentage rate (APR). The lower the rate, the less interest you’ll pay over time. The best lenders offer a promotional APR that temporarily allows borrowers to enjoy rates as low as 0% for a set period. But make sure the APR after the promotional period ends is still competitive, or you risk accruing exorbitant amounts of interest in the future.
- Did you know? Eligible General Electric Credit Union (GECU) members who apply for a balance transfer can enjoy 0% APR for the first 12 months.1
3. Will It Hurt My Credit Score?
When you apply for a balance transfer, a lender will pull a hard inquiry on your credit – something that’s done anytime you apply for a credit product. This hard inquiry will temporarily lower your credit score, as your desire for more credit is considered an indication of your credit habits. Your score should bounce back relatively soon, and the lower rate you secure through a balance transfer will help you pay off debt faster.
One thing to also remain mindful of is your credit utilization rate, which accounts for 30% of your FICO® Score. This figure shows how much credit you’re using and compares it to how much is available to you. As a rule of thumb, it’s best to keep your utilization rate at 30% or below. Lenders use this benchmark to determine how dependent you are on credit. You can avoid a high credit utilization rate during a balance transfer by securing a limit you won’t max out. For example, transferring $5,000 of debt to a card with a $10,000 limit would put your single-card utilization rate at 50%. However, moving your balance to a card with a limit of $20,000 would keep you within the sweet spot of under 30%.
- Want to learn more? Download GECU’s FREE downloadable eBook, The Ultimate Beginner’s Guide to Credit Scores.
4. Are There Any Fees?
Many lenders typically charge a fee for balance transfers that is a percentage of the amount you’re transferring. For example, if the lender charges a 5% fee and you’re transferring $5,000 in debt, you’ll need to pay a one-time $250 fee. It’s important to consider this fee when determining if a balance transfer is advantageous for you.
5. How Do I Set Up a Balance Transfer?
GECU members can apply for a balance transfer online! If you’re not a member yet, becoming one is fast and easy. You’re eligible if you live, work, worship, or attend school in select Ohio, Indiana, and Kentucky counties.
You have financial needs. And GECU has a wealth of credit cards with no annual fee to satisfy them! From cards that allow you to earn unlimited cash back to travel perks, there’s an option for everyone. For help finding your perfect match, reach out to a GECU team member today by calling 513.243.4328 or visiting your local credit union branch.