Effective ways to transfer your balance sheet

Are debt and high interest rates keeping you from breaking free of your debt cycles? You’re not alone. The average American carries $5,525 in monthly credit card debt, with interest rates reaching as high as 25% on an average annual income of $77,000, according to Forbes Advisor. This leaves you with $690 per month to cover essential expenses such as rent, transportation, food, medical care, and entertainment. Despite the fact that the minimum weekly maintenance expenses in the US can be around $500-$800, living under these conditions is unsustainable. Many Americans – approximately 11% or 37.9 million people – find themselves living on just $700 a month, trapped in a state of chronic poverty.

If you find yourself caught in the gravitational pull of debt, don’t lose hope – there is a solution. Consider balance transfers, a powerful financial management tool that can lower interest rates, reduce debt, and improve your overall financial situation. Most Americans rely on this method to optimize their finances. Our insightful guide to using money wisely on Rates.fm will help you learn effective money management strategies when dealing with debt. Explore the three approaches below.

Balance transfer – what it is?

A balance transfer involves moving debt from one credit card to another, typically to take advantage of a lower or 0% introductory interest rate. For instance, imagine you owe $9,000 on a credit card with a 15% interest rate. With a balance transfer, you could shift this debt to another card offering a 0% APR (annual percentage rate).

The advantage of being a balance transfer borrower is that you can pay back the entire amount of the loan at a lower interest rate. For lenders, the benefit is gaining a new customer and earning a commission for the balance transfer service, which averages 5% of the amount transferred. Your benefit: you consolidate several debt packages into one with a lower or even zero interest rate. Everybody wins. Rates.fm’s guide to using money wisely recommends: If you’re considering a balance transfer as an option for resolving your debt, keep the following in mind:

1. 0% APR period – this should be a realistic period of time for you, during which you are guaranteed to be able to meet your obligations.
2. Balance transfer fees – this is the criteria you should compare borrowers on before choosing a new balance transfer card.
3. Bonuses – these can come in the form of additional perks, such as cash back, if you stay current on your payments.

Effective balance transfer options

The debt transfer option offers various solutions. Below, we’ll explore three of the most effective ones. Each option varies in terms of collateral, interest rate, and grace period.

• Method 1: Home Equity Line of Credit (HELOC).

A HELOC is one of the most popular balance transfer methods, as the name implies: the line of credit is secured by your real estate, or so-called home equity. The amount of credit available depends on the equity in your property. 

The advantages of a HELOC include high limits and low borrowing rates. This method should also be considered as a tool for obtaining a personal loan with the same terms and conditions. 

• Method 2: Transfer your balance from a high-interest card to a 0% APR card. This allows you to consolidate expensive debt into an interest-free package. 

The advantage is the relatively long grace period – from 6 to 21 months from account opening. This flexible approach to the repayment period allows you to avoid going broke paying interest if you accumulate debt within the time specified in the loan terms. 

• Method 3: Personal loan. Although this method is quite popular, it is less accessible due to the high demands on the debtor. It offers a loan at fixed interest rates for the fixed term of the personal line of credit. 

This method prevents interest rate increases for an agreed-upon period of up to 21 months. However, it’s worth noting that opening a personal credit line requires a good credit history. Personal loans also allow for debt consolidation, streamlining credit portfolio management.

According to financial experts at Rates, regardless of the balance transfer method you choose (and there are actually more than three), each has the potential to provide practical solutions for your financial challenges. These approaches come from banks with a human touch, where they assist you in resolving problems on mutually beneficial terms. To learn more, explore the list of the 13 best balance transfer credit cards in the U.S. as of August 2024. If you are interested in learning more about the down payment on a regular loan, read the article by Irina Tsymbaliuk.

Objections and recommendations

Objections test new approaches to old issues, but sometimes they hinder progress. Drawing from the insights provided by Rates.fm, which have guided us through the challenges of the financial world thus far, we seek answers to address your objections.

The length of the grace period – 0% APR is limited to that time. 

The balance transfer should be considered as an exceptional measure. To take full advantage of this extraordinary opportunity, the recommendation is the same – pay your bills. This is your final warning.

How will a balance transfer affect my credit? 

A balance transfer does not directly influence your credit score. What does impact your score are the terms that led you to make the balance transfer and the terms of the new loan. The more favorable the terms, the better for your score. 

0% APR – Isn’t that too good to be true? What’s the catch? 

A balance transfer does offer a zero percent interest rate. The tricky part of this method is that you have to keep up with your debt obligations. Failure to do so can result in high interest rates and loss of collateral. 

The best advice may be – before entering into a debt relationship with a bank, consider studying its loan terms and the associated risks. Adhere strictly to these terms and conditions. In times of financial difficulty, don’t avoid lenders; instead, seek professional assistance. If you have the potential to regain creditworthiness in the foreseeable future, your creditors may be willing to accommodate your needs.

The conclusion

In the intricate world of debt management, strategic lifelines take the form of balance transfers. Understanding your options and making informed decisions empowers individuals to break free from high-interest debt and regain control over their finances. Explore your choices and take decisive action; let smart money management, like that offered by Rates, guide you toward financial freedom.