Exploring Credit Card Balance Transfers
What is a Credit Card Balance Transfer?
A balance transfer is an option offered by many credit card issuers which enables the card holder to use their available credit from one card to pay off the balances due on one or more other cards. Usually the interest rate on the amount borrowed is lower than the rate of the cards being paid off by the balance transfer. Rates as low as 0% are often offered for an introductory period.
Benefits of Balance Transfer Credit Cards
Low start up rates can save you money over the interest you are currently paying. If your interest is zero, all of your payments go toward reducing the debt. Credit Card balance transfers are unsecured debt. Therefore your debt is not tied to any collateral. Inexpensive means of borrowing money compared to other loan options. Personal loans, lines of credit and second mortgages are not going to provide you with 0% interest.
Disadvantages of Balance Transfer Credit Cards
- You will likely pay a transfer fee. Almost all balance transfer offers will charge you a transfer fee up front.
- Introductory period limitations. If you do not pay off your balances during the introductory period, your interest rate will likely return to a level similar to what you were paying before you opted to do a 0% balance transfer.
- Good credit is needed. Balance transfers are generally available for those who have good credit ratings. If you have a low credit score you may not be eligible.
Overall, the benefits of doing a 0% APR balance transfer greatly outweigh the disadvantages. However, to get the most out of balance transfers, be sure to use the introductory period wisely. Do not run up more charges on you old cards or pay only the minimum simply because your interest rate is low.
Focus on getting out of debt as soon as possible, so you don’t end up chasing 0% deals every time your rate increases.
