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The rate of interest applicable to credit cards is quite high in comparison to other financial payments. When a cardholder delays the scheduled repayments of the debt the interest over the principal amount keeps on adding that eventually leads to accumulation of debt. Even if you make small payments every month the original debt won’t reduce as there would still be an implication of interest causing the total debt to remain constant. A lot of financial institutions advertise balance transfer credit cards that come with a zero-transfer fee.
What exactly are balance transfer credit cards? How do they help you to settle your credit card debt? How to make use of them? Are they beneficial? If questions like these are popping in your head, we make sure you get answers to them. There are various reasons for opting for balance transfer credit cards and we’ll shed light on them. So, before we dive deep into the ocean of reasons let us quickly understand what are these cards and how do they work?
The process of getting free of debt on one credit card by transferring it to a new one is known as a balance transfer. The main objective of transferring of getting indulged in balance transfer is that it allows cardholders to get a lower rate of interest along with better features and benefits like a reward program or cashback scheme. With the ever-rising popularity of easy credit, there is strong competition amongst major players in the market which is the reason companies have come up with balance transfer credit cards. These cards allow cardholders to transfer their balance from one card to another without paying any extra fees (typically 3-6% of the total amount). On top of that, these balance transfer credit card providers often come up with promotional/ introductory offers where they aren’t supposed to pay interest for the first 6 months to 12 months depending upon the provider.
Although using these cards to shift the outstanding debt from one card to eases the burden by saving on the extra interest that was payable by the cardholder, there is still a debt to be paid. Cardholders even after opting for debt transfer are supposed to make repayment of the debt punctually to prevent accumulation again. When a cardholder violates the agreement issued by the provider the introductory offer is canceled which leads to the imposition of penalty rates.
Conventionally a lot of people avoid juggling between cards as it appears to be a hassle. They prefer sticking to one card to simplify the payment and expenditure activities. However, there are situations when opting for more than one card turns out to be highly useful and one such situation is transferring the balance. In this section, we’ll explain 4 reasons to transfer your balance using balance transfer credit cards.
When it comes to credit card bills the most expensive constituent is the interest. The most important to be kept into consideration while dealing with credit cards is that people should not let the balance grow as it is extremely hazardous in the long run. Paying credit card bills regularly helps cardholders to save over the interest preventing them from debt accumulation. There are a plethora of credit cards that come with zero balance transfer fees along with introductory ARPs for 12 months or even more. These cards not only allow balance transfer for free but also give you the freedom to shop without interest for more than a year. Switching to these balance transfer credit cards and transferring balance will not only help you to save money during phases of financial instability but will also give you the freedom to spend when you’re out of funds.
Very often people get stuck in credit card debt traps that very hard to escape. Moreover, with the fact that the rate of interest that is applicable on the card is very high holding on debt on one of the cards is not recommended. With the help of balance transfer credit cards, debtors can transfer their outstanding balance from the older card to a new one with a 6 to 18%-month free APR. The introductory offer period that provides a free APR provides ample time so that one can repay the existing balance without paying interest at all. The majority of credit card providers do not allow debtors to transfer the balance from one of their cards to another hence most of the time cardholders have to search and explore different credit card providers. Ideally, the best balance transfer credit card would be the one that allows you to transfer balance without paying any fee coupled with a long APR.
The credit score is a mirror image of how one has been dealing with credits in the past. In order to opt for any form of credit i.e. loan, mortgage, credit cards the financial institution analyzes the credit report of an individual thoroughly. A major component that plays a strong role in the formation of the overall credit score of an individual is the credit utilization ratio. Mathematically, the credit utilization ratio is calculated by dividing the utilized credit with the line of credit. By convention, crossing a milestone of 30% credit utilization can affect your credit score negatively. Opting for a new balance transfer credit card substantially increases the probability of improving one’s credit utilization ratio and in turn the credit score. This is mainly due to the fact that a new card will begin with a new line of credit and zero and a zero-outstanding balance. One should be very cautious while using a credit card so that you manage to keep your expenses as well as the credit score on the safer side.
There are numerous situations where our credit card terms and conditions appear to be acting against us instead of acting for us. For instance, the annual fee, the reward program capping, or the interest rate. Whatever the reason might be, opting for balance transfer credit cards can help you escape the older card without any hassle. Most of the time when cardholders call their provider requesting a change it is usually carried out without evaluation of credit report which in turn can affect the credit score extensively in real-time. The card issuer might be looking forward to transferring your line of credit along with the credit history to the new card. By this, one does not fall prey to the downsides of closing their old accounts.
Balance transfer credit cards are excellent tools when it comes to effectively settling debts and maintaining the credit score of an individual. There are numerous other scenarios where transferring balance from credit cards will appear to be useful, however for that one should have the proper knowledge and skillset.