The impact of COVID-19 continues to hit the bottom lines of Americans hard. While the nation is slowly pulling out of lockdown, family finances are yet to recover, with the average household debt soaring. There are several options available to those impacted by the pandemic financially, including balance transfer credit cards. So, should you consider a balance transfer during the COVID-19 (coronavirus) epidemic?
What Is a Balance Transfer?
A balance transfer is a term found with many credit card offers. A balance transfer is exactly what it sounds like: you transfer the balance of one credit card to another.
The purpose of a balance transfer is to consolidate existing balances and pay them down with one payment. Because of the goal, balance transfer cards typically come with a lower interest rate than other types of cards – especially rewards credit cards. Balance transfer cards also usually come with an introductory offer on transfers. These offers might be as low as 0% intro APR but can simply be a reduced interest rate for balances transferred for a set time.
Why Consider a Balance Transfer During COVID-19?
Reducing monthly payments and consolidating debts into a lower interest rate makes sense at any time of the year. Because of the COVID-19 pandemic, however, the thought of a balance transfer might be even more enticing.
Stay-at-home orders, job losses, and stretched budgets are just some of the struggles millions of Americans are facing due to the coronavirus. For those finding themselves out of work, reducing their monthly credit card bills is a logical idea.
Conducting a balance transfer can reduce monthly payments, free up cash for groceries, and help a family’s bottom-line under challenging circumstances. But should you consider making a balance transfer during COVID-19?
Related Article: How to Manage Credit Card Payments During the Coronavirus
Things to Consider Before Applying for a Balance Transfer
Before rushing out and applying for a balance transfer card, take some time to consider the following questions:
Is There a Promotional APR Period? If So, How Long Is It?
One of the most critical aspects of any good balance transfer card is the promotional APR period. Most cards of this type come with a 0% intro APR for between six and eighteen months. This period is usually around one year, on average, however.
While zero interest sounds great, make sure you understand that once that period ends, you’ll pay the standard interest rate. Balance transfer cards have lower APRs than rewards cards, but for those with fair credit, the typical interest rate can hover around 20%. And at that rate, you might find yourself racking up more debt than you’re paying off!
Pay close attention to the introductory period with each card and make sure you can pay off the balance you transfer during that promotional window.
Related Article: What Is the Average Credit Card APR?
Are There Any Balance Transfer Fees?
Transactional fees are another concern of which to be wary. Balance transfers often come with costs – around 3% of the transaction value, on average. Some cards offer no balance transfer fees. Card issuers that usually lack these fees are credit unions and smaller, regional banks.
Just because your bank charges a fee for making a transfer doesn’t mean it’s not worth doing – just make sure it’s financially viable. After all, 3% might not sound like much, but on a $1,000 transfer, it’s an extra $30.
How Long Will the Transfer Take?
Some card issuers will transfer your balance immediately. Others, however, can take up to 90 days to complete the transaction. Make sure you read the terms and conditions on your credit cards carefully – otherwise you might get stuck with your larger balance for longer than you hoped.
Summing It All Up
Credit card debt is rising quickly due to the COVID-19 pandemic. Recent studies indicate that debt grew by 40% in March alone, due to the economic shutdown. Because of this economic turmoil, a balance transfer might make perfect sense.
Before conducting any transfers, however, always make sure your finances can handle the fallout, should your transfer take longer than expected – or your request is denied. Cardholders experiencing hardships can contact their lenders for coronavirus-related credit card relief. These measures include delaying payments, reducing charges, or eliminating excess fees.
Ultimately, a balance transfer is a great financial tool for those looking to get out from underneath mounting debts. Just do your homework first, so there are no surprises down the line.