Pros and Cons of Credit Card Balance Transfers
Pros and Cons of Credit Card Balance Transfers
If you are looking to save money and get out of debt faster, you may be looking into transferring a balance from a higher-interest credit card to one with a lower interest. It is important to note that while transferring a balance can be helpful in helping you, it can also turn a difficult financial situation into a worse one.
When thinking about it, a zero percent balance transfer is enticing. A few months with no interest? Yes, please. However, in some cases, it does more damage than good. Let’s take a look at both, the pros and the cons of a balance transfer.
My friends and I were once discussing how difficult it was becoming to stay on schedule with our credit card bills. There are the monthly insurance premiums, mortgages and car loans to think of, and we were not sure if our salaries (combined with our respective wifes’ salaries) could take any more load.
A balance transfer was at the back of my mind, but I did not have enough knowledge about it to even have the courage to bring up the topic. But I was fortunate to have …
What is a balance transfer?
If you have not been able to pay for your credit card debt, you can transfer the balance to another card issuer. If you do this, you might just worm your way out of additional expenses like late fees. Many people opt for balance transfer because another issuer is offering lower interest rates.
Pros:
How can you benefit from balance transfer?
If you have been unable to pay off your credit card balance, it is most likely that the finance charges are adding up to your debt on a monthly basis. By transferring your balance to another credit card, you will have the opportunity of starting anew.
You do not have to worry about being charged with late payment fees as long as you keep paying for the minimum amount due every month. It is always better if you pay more of course. If you are looking to save some money, give some thought to availing of a balance transfer card at a low rate of interest.
How can I transfer my current credit balance?
The first thing that you will have to do is look out for credit card companies that offer balance transfer. Make sure that their interest rates are much lower compared to your old card issuer – it’s possible to get 1% to 2% interest if you take your time negotiating and researching for a reputable company.
If you do your research right, you could end up with a bank that offers free balance transfers. Some will give you a grace period of six months to a year, where in they charge a lower interest on your transferred balance. Because these card issuers want your business, they will be more than happy to accommodate you. A maximum of four weeks is all that it will take.
Cons:
Would balance transfer have an effect on my credit ratings?
This is the tricky part. If you are just going to transfer the balance to another card, your credit score is safe. Some say that it is better to close the old credit account, but that is not true in most cases. Not only does part of your credit history get “erased”, your debt ratio will be affected negatively especially if your new card has a lower credit limit.
On the other hand, having an open bank account will also affect your credit score, but not as much as closing it. The best thing to do is to keep both accounts open. The old credit card can be discarded, or you can use it as before. But take care to make payments on the transferred amount.
Conclusion:
There is a lot of interest in 0% APR Balance Transfer credit cards because of the tremendous savings possibilities they offer. You don’t have to be an MIT graduate to understand that the 20% you are paying to a high-interest credit card on a balance of $ 10,000.00 is two grand; and if the interest on your credit card was 0% APR, that money would stay in your pocket. It turns out, however, that not all 0% APR credit cards are the same. Major credit card companies, who are competing fiercely with each other at this moment, use a variety of enhancement programs that combine the idea of 0 % APR Balance Transfers and with other add-on bonuses. Consider the offerings of three of the largest credit card companies, how they are similar in terms of the basics, but are putting a twist on benefits:
The Chase Platinum Credit Card
Chase bank has been in the credit card business for a long time, and this card is their standard offer. It has 0% APR on all purchases and balance transfers, provides free online account access, and does not charge an annual fee. The only question about this card is how long does the 0% APR last; and the answer depends on your credit. If you have excellent credit, Chase will give you 0% APR on purchases and balance transfers for a full year. If your credit is good enough to qualify for the card, but not quite good enough to meet the higher standards, that period of 0% APR drops. Still, the opportunity to transfer balances and make purchases at 0% APR makes Chase a good choice.
The Miles Card from Discover
Another industry heavyweight, Discover, has 0% APR credit cards available for purchases and balance transfers. The Miles Card, however, adds the benefit of accumulating airline miles to help consumers choose Discover over everyone else. The company touts their 0% APR credit card for its twelve month duration and the ability to include balance transfers at no interest. The real inducement, however, is the 12,000 mile sign-up bonus and one-mile-for-one-dollar point award. Just to make the deal a little sweeter; there are no blackout dates for these miles and you can fly any airline at any time. You have to have good credit to get one, but the Miles Card from Discover may be a good way to save interest on purchases and balance transfers while building up miles for the next vacation.
Citi® Diamond Preferred® Rewards Card
This 0% APR credit card from Citi not only gives you 12 months of interest-free funds and no balance transfer charges, it also has a points reward system that gives you redeemable points based on purchases. The program works by offering five reward points for every dollar spent on purchases made at supermarkets, drugstores and gas stations; all other purchases get one point per dollar. You get 5,000 bonus points when you get your card, which can be redeemed for a $ 50.00 gift card after your first purchase. Like the Discover card, you will need good credit to get this 0% APR card, but the initial bonus points and rapid accumulation of reward points for purchases of the basic necessities of life could make this just the card for you.
5 MONTHS 0% INTRO APR | 1.5% CASH BACK
Capital One Quicksilver Cash Rewards Credit Card
These days, the question is no longer about finding a 0% APR credit card or a 0% Balance Transfer card; the issue is how would you like that card—with extra months of interest-free money, airline miles, or other rewards such as incentive point programs? Any person who is currently carrying balances on high-interest credit cards should shop online and take a look at the 0% APR and 0% Balance Transfer credit cards from Chase, Discover, Citi and other companies. You may just find the right card for you.
Article by Brandon Coleman & Zain
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