You may already know that shifting credit card debt from a high interest card over to a low interest one can save you a significant amount of money. But do you know the difference between a balance transfer and a money transfer? Here is our handy guide to both processes and some top tips to help you decide which one is the most appropriate for your situation.
Balance transfer – A balance transfer is when you shift debts from an existing credit card to one which has a lower rate of interest attached to it. This can be extremely beneficial if done correctly as transferring debt from a high interest credit card can save you a significant amount of money over the life of the balance. This is because some credit cards involve such a high rate of interest that you may find your monthly payment only services the interest rather than clearing the money you owe. By transferring this balance over to a card with low, or even no interest, can see you chip away at the balance much quicker and bring your overall debt down.
Be aware that there is usually a fee for doing this which is typically a percentage of the amount transferred. Despite this, the fee is often more than outweighed by the savings made on your monthly interest payments. However, you should check carefully the fee attached to the card and the new interest rate to ensure you will be making a saving in the long run.
Money transfer – A money transfer is when you use a credit card to transfer money directly into your bank account, rather than paying off an existing credit card. This may be done to pay off an overdraft, clear other debts, or to fund a specific project. Just like with a balance transfer, there is often a fee attached to this process, typically a percentage of the amount you are transferring.
You must take steps to ensure this process is done correctly. You should not use the credit card to draw out the money in cash; not only will this attract a higher rate of interest but it will also negatively impact your credit file. Instead, you should call your credit card company and let them know that you want to do a money transfer; they will then transfer the request amount into your account for you. Before going ahead ensure you clarify the interest rate that this will be done at, how long this rate will last, and also the fee that you will be charged for doing so. Only go ahead if you are happy with the answers to these questions.
Finally, only transfer the amount you need; not only will this mean you pay a lower fee for the service (as the fee is calculated as a percentage of the amount you transfer), but it also means you will have less to pay back in the long run.
Despite the benefits you must do your research before going ahead to minimise unnecessary fees or charges. Whichever route you choose to go down, here are some top tips to help you get the best deal and save you money in the process:
If you are struggling with debt and would like professional help and advice, contact Scotland Debt Solutions today. Our expert advisers can help you understand the various debt options out there and put you on the right track towards a debt-free future.
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