How Balance Transfer Credit Cards Can Boost your Finances

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You may have faced a string of bad and unexpected events that caused you to resort to using your credit card as a mode of financing. Or maybe you were not as cautious as you should have been with your expenditures (that’s okay and normal, the next thing to do is forgive yourself and come up with a plan for counter-attack) and you might have ended up swiping your card on more machines than you should have. Well, let’s roll it up to the present times, you are holding a below ideal but sizeable amount of debt on your credit card.

If you are someone who can relate to the above scenario and are holding the burden of a credit card debt that is more than what you are capable to handle, then the option to transfer your outstanding balance on the high-interest credit card to any of the balance transfer credit cards that offer 0% or minimal APR during the introductory period might have crossed your mind more than once. And while this option is obviously quite appealing, you will want to carefully weigh the pros and cons that are associated with the balance transfer credit cards and then decide whether this is the right choice for you.

This thread will walk you through all that you need to know about balance transfer credit cards in order to make the best choice as per your situation.

What Is A Balance Transfer?

To sum it up, balance transfer credit cards offer the facility of balance transfer and it is quite simple to use. It allows you, as a cardholder, to transfer your outstanding dues on one credit card to another credit card with either a minimal or 0% low rate of interest. Making use of this facility ensures that you save overall on the total interest payments. In turn, this will help you in lowering your monthly payments and you will also end up paying less when it comes to the finance charges.

One important thing to keep in mind is that the 0% or low rates most of the time come along with an introductory period, which usually ranges between 9 to 18 months, depending on the provider. After this introductory period comes to expiry, the real APR charges come into the picture.

By eliminating the interest due on your balance, you are giving yourself a chance to pay off your dues without a heavy interest piling up. It is a good chance for someone who is deep into a credit card debt.

Now that you have a rough idea of how balance transfer credit cards work, it must be sounding like an amazing option to instantly jump on. However, before you go onto signing up for one of the various balance transfer credit cards in the market, you should consider a few more things that are mentioned next.

When  Is A Balance Transfer A Good Choice?

First things first – you need to have quite a good credit score in order to apply for most of the balance transfer credit cards that are offered at a 0% APR or with a minimal introductory rate of interest. So if your credit score does not seem to be that bright, you might not be approved for the card that you wish for, so that may reduce the possibility.

If your credit score, however, is strong enough for you to be approved for balance transfer credit cards on your list, here is how you can come to a decision regarding which credit card is the right pick for your scenario:

  • Whether or not the transfer fee charged makes it a viable choice financially: In most cases, there might be a fee that is charged on your balance transfer credit cards for using this facility, and generally, this ranges between 3 to 5%. This is what is folded into the new APR charged to you. In simple terms, if you have a card offering 0% APR during the intro period, you will still have to honor a 3% charge that is added to your outstanding dues. But, even if you do not qualify for a card that offers 0% APR, it still might be possible that this is more beneficial for you depending on your scenario. For example, if you are holding a card with a high APR, and you get approved for a card with a certain percentage of APR and a balance transfer fee but the combined figure is still lower than the APR on your previous card. This amount of savings can make a huge difference.
  • Whether you are using it to pay off your past purchases: You should be 100% sure that you are transferring your balance with only the intention of paying off the existing piled up debt you have. You should not consider it as a free pass. The biggest mistake you can make is to use this new card as a means to pay for new purchases. You should focus on dividing the debt you have into monthly payments and then work towards getting your balance to 0.
  • Whether you can manage to pay off the outstanding dues before the introductory period comes to an end: If you manage to wisely pay off your dues before the introductory period comes to an end and the regular APR comes in the picture, then the balance transfer credit cards will definitely be worth it. Otherwise, it might end up voiding your original intent i.e., saving on the interest payments. And depending on what the regular APR charges are along with the time that you require to pay off your dues, it might end up costing you more than it would otherwise.

Things To Keep In Mind Before Resorting To Balance Transfer Credit Cards

Below are some things to remember before you sign up for any of the balance transfer credit cards:

Have A Look At The Fees

While evaluating the various cards, you will want to have a look at what are the different the fee and charges on that card, including the late fees, foreign transaction charges, and cash advance charges. There are many cards that do not have an annual fee, but you should be 100% sure about this by thoroughly going through the fine print as well. 

Choose Carefully

If you have plans to keep your card even after the intro APR closes, then you must look through the terms and conditions closely when you are shopping for a card, along with the perks offered on them. Additionally, make sure the fee and the original APR fit your lifestyle needs.

It May Harm Your Credit Score

A common doubt amongst many of us is whether holding any of the balance transfer credit cards could hurt our credit score. Well, while you are opening or applying for a new card account, it requires the card provider to conduct a hard inquiry on your credit history. Therefore, it generally bumps your credit score down by a few points. With that being out there, if such a move can help you in saving on interest or help you in getting rid of your debt quicker, you should not let this deter you. Your first aim should be to get your debt clearly off your shoulders and the second aim should be to focus on your credit score, as it will improve as you make progress in your financial journey.

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Decide If You Wish To Keep The Card Afterwards

So once your introductory period and the APR offered in that comes to an end, the ideal thing to do is to keep your card account open. The reason behind this is that if you have a high limit on this card, it will keep your credit utilization ratio at a minimum. Your credit utilization ratio makes up a large percentage of your credit score, and it is not something that should be overlooked.

Depending on your outstanding balances, and the credit limits on all your other cards, closing the card account may lead to a bump in this ratio.        

You Can Only Repeat Transfer To One Point

It is possible for you to move your debt around and conduct repeat transfers, but not forever. There are also some factors that do not make this option such a good idea. Every time you move your credit card balance to a new card, it will require the provider to conduct a hard pull on your card which will negatively impact your credit score. And, if you do this for an unusual number of times, the providers will notice a red flag and get suspicious about it.

You also have the risk of not being approved for any of the next balance transfer credit cards you may apply for and you will be left with a huge pile of debt and rates of the interest higher than you can manage.

To Further Conclude

Asking for the right questions and seeking and evaluating the answers to them while looking for balance transfer credit cards can help you in deciding whether it is a good move for your financial future. It is important to thoroughly weigh the pros and cons of it as per your current scenario before going ahead and signing up for one.

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