Credit cards that transfer your balance from one card to another can help you get out of your present credit card debt. It allows you to pay off your debt faster by offering a low-interest rate for a set period.
Credit cards that allow you to transfer your debt from another card to one with a reduced interest rate are called “balance transfer credit cards.” If you consolidate your loans, you can reduce your interest payments and overall financial outlay. It’s crucial to weigh the benefits and drawbacks of a debt transfer credit card before applying for one.
In this article, we will discuss balance transfer credit cards.
Credit Cards with Balance Transfer Benefits
A Rate That’s Hardly Worth The Name
The low-interest rate of balance transfer credit cards is the primary benefit of using such cards. These cards typically have a lower interest rate than your current card during the introductory period. This helps you save on the overall interest outgo. Regarding interest, this low rate can go as low as 0%, meaning you won’t pay anything during the promotional period.
Reduce Your Debt by Combining Your Accounts
Credit card balance transfers simplify debt repayment by combining many obligations into manageable monthly instalments. Debt can be related to several high-amount purchases. Many even know how to transfer money from credit card to bank account, so they utilise this facility but forget that every spending on the credit card, especially cash withdrawal comes at a higher interest rate.
A balance transfer credit card allows you to consolidate all debts into one simple-to-handle payment plan. This way, you can keep track of your payments and remember to make them.
To Save Money
You can save money on interest by transferring your payments to a balance transfer credit card with a lower interest rate. If you have a significant debt, this could be extremely helpful. Reducing interest payments means debt can be paid off more quickly.
Boost Your Credit Report and Score
A low credit score could result from carrying a large credit card bill. Reducing your credit utilisation ratio by moving your balance to a balance transfer credit card will help your credit score.
Credit Card Balance Transfer Downsides
Very Excessive Expenses
The high costs associated with a balance transfer credit card are one of the major drawbacks of this product. A debt transfer fee is usually assessed as a percentage of the transferred balance when using a credit card. This fee’s percentage applied to the outstanding balance often falls between 3% and 5%. There may be a temporary drop in your credit score after transferring a balance, but in the long run, it could improve.
A Brief Setup Phase
Although introductory balance transfer credit card interest rates are sometimes relatively low, they are often only available for a limited time. The interest rate could skyrocket once the initial term ends. This could become an issue if you haven’t paid your balance in full.
By transferring a balance to a new credit card, you can boost your available credit by the amount of that card’s available credit. Your usage ratio will decrease unless you take on any new debt and keep up with your payments. This is not a reason in and of itself to use a credit card for balance transfers, but it is an advantage that may accrue over time.
Consumption-Induced Temptation
When you have a credit card balance to transfer, it can be tempting to make additional purchases. The reduced interest rate on the balance transfer credit card could persuade you to make extra purchases. Your debt load may rise.
Damage to Credit Score
Several balance transfer credit card applications can potentially affect a consumer’s credit score adversely. An application for credit results in a hard inquiry on your credit report, which can hurt your score.
Will You Save Money If You Transfer Your Balance?
You can save money by paying off your transferred debt within the introductory interest term. To rephrase, you will save money in the long run if you transfer a balance to a card that offers a 0% APR introductory period for 12 months and then pay off the balance within that period.
Typical benefits of credit cards that allow you to transfer your balance are as follows:
- Low or introductory APR: Many balance transfer credit cards offer introductory APRs of 0% on balance transfers for a set period (often 12-18 months).
- The percentage of the transferred balance that constitutes the balance transfer fee is generally between 3 and 5 per cent.
- A balance transfer credit card’s credit limit is the maximum amount that may be transferred from another credit card and the maximum amount that can be spent on the card.
- If you make purchases with your balance transfer credit card, you may be eligible for perks like cash back or points.
- But most cards that allow you to transfer balances don’t charge one; others do.
It would help if you also thought about how beneficial the card will be to you beyond the promotional period and what other features the card might provide. A balance transfer makes sense if you’ve determined how long you’ll need to pay off your debt and found a card with a special 0% APR period that works for you.
