Credit card debt has gone down as a result of the coronavirus pandemic, with total revolving debt dropping from $1.0942 trillion at the end of 2019 to $992.4 billion in June 2020, according to the Federal Reserve.
Part of the reason is that spending has gone down is budgets have tightened during the ensuing economic downturn. But another reason is that credit card companies are reducing credit limits of existing customers and tightening their underwriting criteria for new applications, making it harder to get approved for a card.
If you want to eliminate credit card debt, though, a balance transfer credit card could be key (and help you save hundreds of dollars in the process). Here’s how to get a balance transfer card — plus, some advice if you want to get out of credit card debt fast.
How do I get a balance transfer credit card?
Balance transfer credit cards generally require good or excellent credit to get approved. According to FICO, a good credit score starts at 670. Just because you meet that minimum, though, doesn’t mean you’re guaranteed approval. Card issuers will also review your credit report, other debts, employment, income information, and several other factors.
If you’re not sure where your credit stands, check your credit score for free with a service like Experian or Discover Credit Scorecard. Also, consider using an online marketplace like Credible to compare some of the top balance transfer cards side by side and pick the right one for you.
Just remember, there are a lot of pros and cons of balance transfer credit cards.
What’s the benefit of a balance transfer credit card?
Balance transfer credit cards offer low or even 0% intro APR promotions to borrowers who qualify. These APR periods often last between six and 21 months, which can give you plenty of time to pay down your balance interest-free. Depending on how much you owe, these interest savings can outpace the value of a new credit card sign-up bonus.
Some of these cards even offer rewards on your purchases. Explore your credit card options by visiting Credible to compare.
Keep in mind, though, that many balance transfer cards charge an upfront balance transfer fee. This fee typically ranges from 3% to 5% of the transfer amount and is added to your balance once the transfer completes. But in many cases, the interest savings make this fee worth it.
Should I consider a 0% intro APR purchase card?
As a result of the pandemic, many credit card issuers are no longer offering balance transfer promotions, and instead are providing 0% APR deals on new purchases. This benefit may be worth it if you need to make a large purchase, or you have expenses you can’t afford right now but can pay off over time.
It’s never ideal to carry a balance on a credit card, but doing it with a 0% APR can provide some much-needed relief during difficult financial times. It won’t help, however, to pay down your existing debt.
If you’re considering a 0% APR credit card, visit Credible to view multiple 0% credit card options at once.
Is a personal loan a better option?
If debt consolidation is your top priority, you may also consider using a personal loan to achieve your goals. Personal loans allow you to use your funds for just about anything, including paying off other debts. In some cases, you can complete the application, process, get approved and receive the money the next business day or even the same day.
On average, personal loans carry lower interest rates than credit cards, which can help you save money. Also, unlike credit cards, personal loans have a set repayment term, which means you won’t get stuck in a minimum payment trap.
A personal loan for debt consolidation may be a good alternative to a balance transfer credit card if you don’t qualify for the latter. However, there’s no guarantee you’ll get a better interest rate than what you’re paying now. Also, there are no zero percent personal loans, so if you have the discipline to pay off your debt quickly, want to maximize your savings and have great credit, a balance transfer card may be the better choice.
Credible can help you find the best personal loan rates, making it easier to compare all of your options based on your credit profile.
You can also use their personal loan calculator to run the numbers for your situation.
Should you apply for a credit card or personal loan?
There’s no easy way to determine if applying for a new credit card or loan is the right fit for everyone. Carefully consider your current financial situation and the financial goals you’re trying to accomplish, then think about how a credit card or personal loan might help.
Also, consider the costs of each option to make sure you find the most inexpensive way to meet your needs. Just keep in mind that if you have subprime credit, your options will be limited, and you may need to address credit issues before applying.