The financial impact of the pandemic has been difficult for our community. In combination with inflation and interest rates rising, consumer debt has drastically increased. According to data released from the Federal Reserve Bank of New York, consumer credit card balances reached a record high of $841 billion in March of 2022. With credit card rates being the highest among consumers, it can be more difficult to pay down debt with compounding interest. If you are among the millions who have increased their credit card balance within the past two years, consolidating to a lower interest card with a balance transfer may be your answer to get you back on track to lowering your debt. Here are 5 steps to help you understand the amazing benefits of transferring your balance.

1. Understanding Balance Transfers
   A balance transfer is simply taking the balance of your standing debt, normally on a credit card, and moving it to a new credit card while taking advantage of a lower rate, called an introductory or promotional rate. Introductory rates are for a specified amount of time and can be used to your advantage. For example, if you have a $1,000 balance on a credit card with an 18% interest rate, transferring that balance to a new credit card at 0% interest for 12 months will allow you to save tremendously on interest to pay down your balance. Also, balance transfers are not only limited to credit card debt. Some will allow you to consolidate other debts such as personal and auto loans.


2. Finding the right balance transfer for you
   First, find a credit card company that matches your needs and can be a resolution to your situation. It is recommended to find a financial institution that will provide an offer to you without impacting your credit. This is considered a pre-approval and will be a soft check on your credit, which means no hard credit checks will be on your credit unless you accept the offer. Keeping your credit score high with the least amount of hard inquiries is important when it comes to credit score management.


3. Pay Attention to the Rates and Fees
   Most credit card companies offer an introductory period with rates as low as 0% interest. The timeframes given with this special rate can normally range from 6-18 months, which is a great amount of time to pay down debt at a lower rate. Other rates and fees to pay attention to are the balance transfer fees and the standard rates. Most financial institutions will charge a balance transfer fee from 3-5% of the total balance you are transferring. And introductory rates are for a limited amount of time. After the period of time has ended, your rate will increase to the standard rate notated on the contract.


4. Variable Rate versus Fixed Rate
   When accepting a credit card agreement, be sure to pay attention to what kind of rate is in the offer. A variable interest rate loan is a loan where the interest charged on the outstanding balance fluctuates based on an underlying benchmark. This is a rate that could change often. A fixed interest rate loan is a loan where the interest rate on the loan remains the same for the life of the loan. Do your research and calculations to configure which rate will work best for your needs.


5. Set a Plan and Pay it off!
   It’s important to set a plan to pay off the balance before the introductory rate expires. Check out Dover Federal’s built-in Debt Consolidation Calculator to help you figure out your monthly payment and how long it will take you to pay off your debt. It is very important to use the introductory rate to your advantage and pay off as aggressively as possible.
   
   Take a look at an example of a plan to pay off $1000 with a balance transfer in comparison to paying it off regularly.
    

   Balance	Interest Rate	Monthly Payment	Months to Pay to Zero	Interest Paid
   $1,000	18%	$35	38 months	$315.60
   $1,030 (balance transfer fee added)	0%	$85.83	12 months	$0

   
   Once you’ve determined which credit card offer you will accept and have a plan ready, make sure you gather all of the information you have from your other creditors to prepare to consolidate. You will need to know the payoff balance(s), address(es), and account number(s) of your debtors for a smooth transaction.

Key Points about Balance Transfers

• They are used to transfer debt (credit card or other personal) to a new credit card
• Take advantage of preapproval offers, to help minimize hard inquiries
• Find the lowest introductory rate offers
• Notate when the introductory rate ends
• Balance transfers can charge a fee of 3-5% of your balance

Now that you understand what a balance transfer is and how it works, take a look at Dover Federal’s Credit Cards and choose the card that will help you get there, wherever that may be.