Making a credit card balance transfer may either help you or ruin your financial future.
Transferring a balance from one credit card to another seems like a logical thing to do – especially if you are moving the balance from a higher interest credit card to one that charges lower interest rates. However, making a balance transfer is not a simple decision. You need to go over the terms and conditions and review the fine print thoroughly before you make a move since failure to do so may worsen your current financial situation.
Credit Card Balance Transfers: Uncovering the Good and the Bad
Before making a decision, you need to know the pros and cons of transferring your balance from one credit card to another. Here are some of the things you absolutely need to consider.
The Pros of Making a Balance Transfer
- You can get lower interest rates. Transferring your current credit card balance to one with a lower balance transfer interest rate can save you hundreds or even thousands of dollars in interest rates. It may also allow you to repay your balance sooner.
- You can consolidate your debt. If your new card has a high credit limit, you can move your balance from your other credit cards so you don’t have to make multiple payments every month.
The Cons of Balance Transfers
- You may end up with a higher interest rate. If you have a less than stellar credit score (below 720), there is a possibility that you would not qualify for a top notch card offering a low interest rate balance transfer. When this happens, you may only qualify for a higher balance transfer interest rate. On the other hand, if you do qualify but failed to make a payment on time, you might forfeit the interest-free period and your interest rate may go higher than your old annual percentage rate (APR).
- It can be expensive. Keep in mind that balance transfers are not free. You need to pay for the balance transfer fee which is a set percentage of the amount you are going to transfer. Plus, if your new card is charging an annual fee, the amount you need to pay can go higher than you have previously anticipated.
- It can negatively affect your credit score. Having a credit balance above 30% of your credit limit can seriously hurt your credit score.
Taking all of these things into consideration, should you consider a credit card balance transfer? Well, it totally depends on your financial goals, your current situation and your ability to stick with your repayment plan.
If you are transferring a balance from a higher interest credit card to one with lower interest rates so you can get out of debt in a shorter period of time, understand what you are getting yourself into, and are confident that you can stick with a repayment plan that can help you achieve your financial goals, there is no reason why you should not seriously consider this option.