7 Important Things to Know About a Balance Transfer Credit Card
The various types of balance transfer credit cards in the market can provide a valuable solution for any individual that is attempting to pay off card dues with high-interest charges. They can help one in paying off debt quicker while also helping in saving some money on the interest. Additionally, they can play a major role in helping you consolidate your monthly dues, or in increasing your available credit limit, thereby positively contributing to your credit score.
However, at the same time, there are a few reasons to consider that will make you want to avoid the urge to transfer your balance to a zero-interest credit card. Consider the 7 things detailed below before signing up for a balance transfer credit card.
Balance Transfer Charges
Usually, when you, as a cardholder, execute a balance transfer, you are subjected to a balance transfer fee. This fee usually ranges between 3 to 5% of the total transferred amount and can be a hefty amount that is added to your total outstanding dues. However, it might be possible that when compared to a high-interest rate card, you may end up saving some money. In such a scenario, you should calculate your monthly interest rate charges, along with the amount that you would end up saving by opting for an interest-free card, and whether that amount is more than the balance transfer charges on the card.
There are some cards in the market that do not charge any fee for balance transfers. However, many such cards might not offer the 0% interest promotion period – where you do not have to pay any interest at all. Or if they do, they might have a shorter period as compared to the other cards that will be charging a fee for a balance transfer. Again, you should calculate the figures in order to choose the option that suits your requirements and needs the best.
It Might Hamper Your Credit Score
When you apply for any type of credit card, it results in a hard inquiry on your credit report, regardless of you being approved or not for it. This can end up resulting in your credit score taking a hit. This means that if unfortunately, you are not approved for a new credit card, your credit score could still possibly decline.
If you shut your original credit card after you have made the balance transfer, the average age of your accounts is going to decline. This will also cause your total credit available to decline. These are factors that tend to hamper your credit score. To overcome any such problems, it is best to keep your original credit card open (with minimal balance), even after you have transferred the balance out of it to your balance transfer credit card. However, if you think you will feel tempted to spend some bucks on your old credit card, then it better to close it instead of falling prey to overspending.
It Is Just Temporary
The zero-interest offers on the balance transfer credit cards in the market are temporary and only last for a period of about 6 to 21 months, depending on the issuer. This is why it is good for you not to get very comfortable with the low APR charges as it will be reverted into high APR charges once the promotional period is over.
While making a balance transfer, the most essential factor is to commit to paying off your dues within this promotional or introductory period. Otherwise, the interest charged will start pilling up again and you would be wasting an opportunity at hand to get rid of your entire debt at once.
You Might Not Be Eligible for 0%
Bear in mind that you will not be having a 0% promotional rate of interest unless you qualify and are approved for it. Also, receiving an application or a mail claiming pre-approval does not guarantee the chances of you getting it.
Additionally, a 0% balance transfer credit card cannot help you if you get the approval but the credit limit on the card is so low that you are unable to cover the amount you actually require. You will just end up having to honor two payments on a monthly basis instead of one.
It is extremely very important to always ensure to thoroughly go through what you are applying for. Not all promotional APR offers include balance transfers, so you should be sure to read the offer to know if the 0% applies to balance transfers, or purchases, or both. Sometimes, it is only offered for one of these and not both of them.
You Might Not Be Able To Transfer Any Balance
Most of the credit card issuers in the market do not allow a balance transfer from another one of their provided cards. This means you will have to get a balance transfer credit card that is not issued by the same bank as the credit card from which you want to transfer the balance. Therefore, you need to check that the provider of the card on which you have your eye on and the provider of the card from which you want to transfer the balance are not the same.
You Might Fall Prey To Paying Only The Minimum
Many of the borrowers in the market who open a new balance transfer credit card account may find themselves to be tempted to only pay the minimum due amount instead of what they were paying on their previous credit card. However, just because you now hold a card that offers a lower APR does not mean that you should be paying off an amount lesser than before. In fact, you should take advantage of this and use this time to pay off your entire credit card dues without having to worry about the interest so much. So, you should ensure to at least pay as much as you were paying on your previous credit card.
You May Feel Tempted To Spend Extra
If you are someone who faces a hard time keeping your credit card accounts open without spending anything on them, you may want to avoid opening another card account. Adding onto your existing debt with defeat your entire purpose of opting for a balance transfer credit card, and will land you in a position that is worse than the one you were in when you started. Also, sometimes, the 0% interest is not applicable to any new purchases incurred on the card, which means that you will immediately start to accrue interest on any new expenditures incurred on your new balance transfer credit card. So the best thing you can do when opening a new card for the purpose of a balance transfer is not to add any new expenditures on the card.
Here’s How To Make The Most Of Your Card
If you have decided to proceed with opting for a balance transfer offer, make sure you are 100% sure about the terms well in advance. You will want to know when your promotional period of 0% APR ends, what the regular APR will be once this period is over, the minimum payment for the month, and how much are the charges for a balance transfer. To enjoy the most out of your offer, it is best for you to clear off your balance within the 0% APR promotional period. Otherwise, you will end up wasting money more on the fee for balance transfer along with the APR for the new balance transfer credit card.
The key is to make use of your balance transfer credit card strategically in a manner than reduces your overall debt. If you manage to not use this card for any other purchases and keep a lookout for the expiration date of the promotional APR, you should be just fine.