Balance transfer credit card: pros and cons
Find out if you should get a balance transfer credit card
Credit card debt is like a snowball: the bigger it gets, the bigger it gets! Therefore, knowing resources to protect yourself from this effect is essential. Undoubtedly, a good option is to use a balance transfer credit card.
However, knowing how to use it is better, or the situation can get even more critical. To understand more about this possibility, keep reading this article.
What is a balance transfer credit card, and how does it work?
You’ve probably seen an avalanche in one of those snow horror movies. In these, handfuls of snow begin to roll down from the tops of the mountains like tiny flakes of ice.
However, as they descend the mountain, they become bigger and heavier. The bigger they are, the greater their ability to clump together more snow, making them even more deadly.
This image represents credit card interest well. It can be “harmless” on the first balance you delay. However, the longer you go without paying your balance, the bigger your debt gets.
Then, the time comes when you can no longer afford them without completely losing control of your budget. In addition, the impact can also be felt on your credit score.
However, there is a way to make that “snowball” of interest on your card debt stop growing or grow more slowly so you can pay it off. This is the balance transfer credit card method.
With this one, you can transfer your debt from one card to another. You may be thinking, “But how would that help?”. It can be of great help if you transfer your debts to an interest-free card.
Yes, those exist. Several options with this feature are on the market. To find out about them, just search for “credit cards with 0% APR introductory term for balance transfer” on Google.
Also, interest-bearing credit cards for balance transfers may be lower than the card you have today. So you can “stop” your debts from increasing and pay them off.
However, you need to know if this method can help you. A good idea is to know the advantages and disadvantages of this:
Is a balance transfer credit card the right option for you?
Before you look for a balance transfer credit card, sit down and calm down. Below, you can read about the advantages and disadvantages of this method.
Only then will you be able to know if this one can help you:
Pros
- You can consolidate debts from multiple cards into just one card. In effect, you can transfer balances from several cards to one. This advantage, in addition to reducing your indebtedness, can better organize your accounts.
- Cut your debt: Consider how much smaller it would be if no interest was charged in the last 15 months. A balance transfer can save you a lot of money.
- With payments, you can have more peace of mind: In the months when you can’t pay the balance, you don’t have to freak out. No interest will be charged on this debt.
- Improve Your Credit Score: Lowering your debt levels can improve your monthly credit score.
But since not everything is perfect, learn about the negatives of using this strategy:
Cons
- Transfers are not free: for each transfer, you must pay a fee of, on average, 3% to 5% of the transferred amount. For example, if you transfer a balance of $6,000, you must pay a fee between $180 and $300. This is a considerable amount.
- Low interest rates don’t last forever: there is a period when your APR rate will stay at 0%. On average, this period is 15 months. After this period, the interest charged may be higher than the market average.
- Escape the 0% APR trap for purchases. Most of these cards also offer a 0% APR period for purchases. This offer can be very tempting for some people, which would generate new debt.
- Not everyone can count on this help. Most really advantageous credit transfer credit cards require good or excellent credit scores, so more than half of the population simply cannot use this feature.
How to choose the best balance transfer credit card for your finances?
Indeed, choosing a good balance transfer credit card may not be easy. Therefore, consulting a good balance transfer credit card manual is a good idea.
Another good tip is to learn how to use a balance transfer on credit cards before you get one!
However, you can use some general rules to guide your choice. First, always prefer cards with 0% APR.
Only in cases where you cannot apply for a card with this feature do you opt for cards with an interest rate higher than 0% but always lower than your current rate.
On average, cards offer 15 months of 0% APR for balance transfers. However, some cards may offer a longer term. To have more time to pay your interest-free bills, opt for the cards that offer the most extended term.
Finally, interest rates should be checked after the 0% APR period. Some cards may “offset” unpaid interest by charging above-market rates.
Tips for using your balance transfer credit card responsibly
Now, get to know the top expert advice on the subject of credit card balance transfer:
Do the math and analyze
Before using this feature, make sure you can pay your debt within the 0% APR period set by your card.
Don’t fall into the card “trap” for balance transfer
Do not make any new large purchases until your debt is paid off. Don’t fall into the 0% APR “trap” for purchases.
And then?
Be prepared for when the interest rate returns to normal by knowing the conditions of your new card now.
Use it, but not as much.
Avoid using this feature too often: applying for too many cards can hurt your credit score.
What should you do with old credit cards after a balance transfer?
Decide what to do with your old card. Study the impacts a cancellation can have on your credit score. If you’ve been using it for a long time, getting rid of it might not be the best choice.
