If monthly credit card payments are barely damaging the surface of your overall balance, it can make your debt feel overwhelming. The good news is that you may not need to continue fighting against sudden credit card bills and unsettling balances. Instead, you can benefit from a Balance Transfer Credit Card If your credits are still in good condition.
Introduction to Low or Zero Annual Rate (APR) It helps you repay your credit card balance faster, save money with interest and improve your credit score. However, despite all the advantages of balance transfers, if you take into account the drawbacks like balance transfers, it may not be the right move for you. We interviewed experts to talk about the pros and cons of balance transfer. So you can determine if balance transfer is the right move for you.
The advantages of balance transfer
If you are eligible, you can earn more from the balance transfer. Here’s a summary of the biggest advantages:
You will pay less interest
The most important reason to pursue a balance transfer credit card is to take advantage of a low or 0% introductory APR offer. By transferring your debt to this new card, you will soon start saving interest. All payments you make will be sent directly to reduce the amount you owe. If many of your monthly payments are heading towards principal, you won’t be able to pay off your debts faster and reduce your interest overall.
“Currently, credit card interest is very high, with rates rising from 18% to 27%. As credit card fees are unsecured loans, banks are allowed to charge high interest. Balance transfers allow consumers to temporarily lower or lower interest when paying off their debts.”
– Former CEO and founder of Member Access Processing, Cyndie Martini, the country’s largest aggregator of Visa card services for credit unions
You can consolidate debt payments
Depending on the credit limits allowed, new credit cards allow you to transfer the debt balances of multiple credit cards to a single card. In turn, this streamlines your finances by allowing you Merge multiple payments. If you’re struggling to manage some due dates and payments, this can be very helpful.
“If you’re dealing with it Multiple credit card debtTransferring all balances to one card simplifies financial management. Sudhir Khatwani, founder of Money Mongers, said:
You can take advantage of the benefits of new cards
Best Balance Transfer Credit Card Selected can provide an intro balance transfer APR of 0% or more. It also may offer better overall benefits, such as cashback, rewards, and discounts.
“New generation of cardholders are used to moving from one service to another, such as streaming, cable, and mobile phone providers, and may feel they are not getting the full benefits or services from existing publishers.
Your credit score may improve
“The side benefits of transferring balance to the right card,” said Dennis Silshkov, former growth director at AWNING.com and a professor of finance at New York City University. Improve your credit score By reducing credit usage. ”
your Credit usage rate Measures the amount of credits you are using and the amount of credits available. Usually it is expressed as a percentage and is calculated by splitting the total amount borrowed into a revolving credit account, by the total credit limit for those accounts.
If your credit is high, meaning you are using most of the available credits, which is negatively possible It affects your credit score. This is because opening a Balance Transfer Credit Card will reduce your credit usage, increase your credit availability, and you will repay your balance without adding any interest.
Cons of balance transfer
On the other hand, balance transfer credit cards have their drawbacks. If you find that the downsides are above the pros, you may want to consider Balance Transfer Alternatives. Some caveats to keep in mind are as follows:
You may not be eligible for a valuable card
You usually need to have it to qualify for the best balance transfer credit card offer Good or excellent credits. There is an option for If you have poor credit, balance transfer cardthey are usually short of the best cards there. If your score is in a low range, you may not be eligible for a card with a 0% intro APR offer.
Instead, a Debt Management Plan It may offer some relief. These plans are provided by Credit Counseling Institution It offers benefits such as low interest rates and monthly payments. This will help you pay off your debt faster without requiring a minimum credit score.
Balance transfer fees may apply
Depending on the terms and current promotions of the card you are considering, you may need to pay Balance transfer fee. This fee is usually between 3-5% of the total transfer amount and may be qualifying for the lowest rate. For example, if you transfer your $1,000 balance to your balance transfer card with a 5% transfer fee, the total amount you will need to pay back is $1,050.
While it can be difficult to negotiate or avoid balance transfer fees, there are credit cards that do not charge you a balance transfer fee. In addition to the small number of balanced transfer cards offered by major issuers, there are several Credit Union We also offer a card with no balance transfer fees.
It can make the problem worse
The truth is that it’s just a balance transfer card that doesn’t necessarily move your money. Relieve debt problems. In fact, if you don’t practice good financial spending and repayment habits, you can make the problem worse.
“Know that credit transfers are not free money to pay off the open balance. It’s just an opportunity to save money and pay off your balance,” warns Martini.
Having a new card may tempt you to charge more, especially if a new balance transfer card is offered. 0% intro APR At the time of purchase.
“Without discipline and planning, a shift in balance can make your financial situation worse and seduce you to acquire more debt,” warns certified financial planner Andrew Latham.
Manage your spending Create a realistic budget It tracks your income and expenses responsibly. Avoid impulse purchases and try to pay more than the minimum amount each month to your credit card.
Introductory APR offers will never last
It’s important to remember that 0% provided by Intro APR Usually it expires 12-21 months after opening the card. It offers a limited time window to earn profits, but it can also provide a false sense of security.
“It’s important to read the fine print as (offer) changes,” Martini says. “Before you begin a balance transfer, understand the period during which the new issuer offers 0% or a low interest rate. Transfers to work in favor of you will need to repay the balance before the end of the adoption rate.”
And once the introductory offer is over, your remaining balances may be affected by higher interest rates than before. To repay your balance before the intro period ends, plan with Bankrate Credit Card Balance Transfer calculator to determine monthly payments that will help you achieve your goals.
Your credit score may drop
Every time you sign up for a new credit card, Your credit score may drop Up to 10 points – probably for a few months. This is because applying for a new card can usually trigger harsh inquiries and temporarily lower your credit score. In addition to using more recently released credits and lowering the overall age of your credit card, you can also lower your credit score.
If you are worried about your score drop, keep in mind that it is temporary. You can also avoid additional hits to your credit score by creating a payment plan with your credit card company. This appears to automate payments and make smaller and more frequent payments that are easier to manage.
You may not be eligible for a loan
If you are planning to apply for a mortgage, car loan, home equity loan or personal loan in the near future, be aware that you will get a balance transfer credit card now. As mentioned above, when applying for such a card, your credit score may be temporarily reduced by adding hard enquiries to your credit profile. This will make it difficult to get the loan approval you want and ensure a low interest rate. In this case, sticking to your current credit card might help, but you can make larger or additional payments on a regular basis to cut your debts down faster.
Alternatively, you could consider using a part of your personal or home equity loan to consolidate and pay off your high-profit credit card debt.
“Personal loans are available, often easily available, and usually have much lower interest rates than any credit card,” suggests Martini.
When should I get a Balance Transfer Card?
Getting a balanced transfer is not a one-size-fits-all solution for dealing with credit card debt. a Moving balance may be a bad idea In the wrong situation.
However, if you are experiencing these situations, a balance transfer card might be a good idea.
- We solved the problem that contributed to credit card debt.
- You fully understand your budget and know exactly how much you can contribute to paying off your debts each month.
- I’m not applying for major loans like mortgages or car loans right away.
- You still have a healthy credit score.
- We do not foresee economic disruption for the next 12-21 months.
- Your credit card debt is not hopeless. It’s just challenging to deal with.
A good candidate for a Balance Transfer Card is someone with a great credit score that qualifies for the best conditions and fee cards. They also have disciplined and committed to paying off balances within the promotional period, and they see balance transfers as a tool to manage debt.
– Andrew Latham
CFP
If that’s not you, then even if the 0% primer seems like an opportunity you can’t pass, we recommend you reconsidering your balance transfer credit card. Instead, you can assess your finances and address the root of your credit card debt, or try other options to tackle your debt.
When should I skip the balance transfer card?
Balance transfer cards can be a powerful financial tool, but they are not right for everyone. You can skip if:
- You know you can’t make your payments on time. This will hurt your credit score even more.
- There is no need for a long intro APR period. For example, if you know you can repay your balance within a few months, save the dyn in your credit report and balance transfer fee. Instead, focus all your efforts on reaching the finish line.
- You know you can’t manage it. If you’re too tempted to spend too much on your new card, give yourself a favor and reconsider.
- You are trying to buy a car or a house. Lenders don’t want to see people seeking more credit at once. It is considered a red flag. Instead, keep your credit in the best possible form and ask your lender if the new card will help or hurt the application.
Conclusion
a 0% APR Offer You can make great strides in paying off your credit card debt. It also has a number of drawbacks, such as a temporary lowering of your credit score. Before pursuing a balance transfer credit card, carefully assess your financial situation. This includes the ability to repay and qualify for new cards. Check out Bankrate’s CardMatch™ Tool Matches a balance transfer card that matches your credit profile and financial goals.
