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Credit cards provide freedom to users, facilitating the purchase of goods consumers can’t afford. While this does sound appealing, these plastic auto-financiers always result in something that ravages millions of households around the United States: debt. Debt results in stress, less free money, and worry that its holders wouldn’t otherwise have.
Credit card debt has detrimental impacts on a number of important things in life, most of which stem from flailing credit scores. Lenders at banks, phone companies that extend phones on contract, insurance agents, and even landlords — including a wholeheartedly-large trove of others — utilize credit scores in making decisions on applicants and existing customers with declining financial position.
As such, transferring a credit card balance is one of the most widespread balance-related payment strategies. Below are several benefits to transferring a credit card balance that you might not’ve already known about.
Lowers credit card utilization
Credit card utilization refers to the total outstanding balances of all of a consumer’s credit cards in respect to their maximum balances. For example, if Ja’Dante has three credit cards with outstanding balance, and their maximum balances are $500, $1,000, and $1,500, his maximum possible balance is $3,000. If each credit card has $300, $400, and $500 outstanding on them, respectively, Ja’Dante’s credit card utilization is calculated as follows:
($300 + $400 + $500) $1,200
________________________ = _________ = 40% credit card utilization percentage
($500 + $1,000 + $1,500) $3,000
These percentages are considered positive when credit card utilization is under 30%. Ja’Dante should pay off current balances, or — as long as he doesn’t continue getting credit card debt — open up a new card.
Results in fewer interest charges
Interest is charged on principal, or the current outstanding balance. Interest is expressed as a percentage and calculated daily by most lenders. When you transfer a balance from a higher-interest account to a newer, lower one, you are charged less interest. Try this with low- or no-interest promotional offers for newer cards for best results.
More time to pay outstanding balances
Transferring an outstanding credit card balance may result in more time in the interim to pay the balance. For example, if Martha owes at least a minimum payment on August 21st and it’s August 16th, she can transfer it to a different card with a later payment date to avoid remitting payments during difficult times.
Boosts credit score
Transferring a credit card balance will reduce credit card utilization, less interest, prevent late fees in certain cases, and a wealth of other benefits. Ultimately, all these — and more related to balance swaps — will make your credit score rise a fair amount.