Balance Transfer Cards - A Smart Idea?

In the world of finance, there are certain calculated moves that can prove beneficial; making a balance transfer with credit card debt has the potential to be a smart move. But, if you’re not careful it can be a bad financial decision in the long-run.

So, are balance transfer cards a smart idea? Let’s take a closer look at how they can help and hurt below so that you can make an informed decision.

What are balance transfers?

A balance transfer is referring to when you transfer a balance from a credit card with a high interest rate to a credit card with a lower interest rate in order to lessen the amount you pay in the long run. Many people will also utilize this opportunity to

What are the pros of a balance transfer?

When a balance transfer is done correctly, and with the intent of paying a balance off, there’s definitely some positive benefits to be found:

• Your debt can be paid off quicker.
• It consolidates your debt, making it easier to focus on paying off your debt.
• You can pay hundreds of dollars less due to lower interest rates.
• Once the debt is paid off, you have more credit available to you between both cards.
• You can during and after the process.

What are the cons of a balance transfer?

If debt consolidation is not done in the right way or for the right reason, you can find yourself on a slippery slope into a potentially worse credit situation:

• Often, the lower APR on the new card is introductory. This means if the debt is not paid off quickly, you could end up paying more due to the APR increasing.
• If you don’t pay off the amount you transferred you could end up increasing your debt by doing the transfer instead of diminishing it. This can be made especially worse if you didn’t wipe out all the debt from the card you transferred from.
• Credit card companies will often charge a balance transfer fee, which is a percentage of the balance you’re transferring. If you aren’t careful, you could end up paying a couple of hundred dollars just in fees, which often negates the objective of paying less in APR percentages.
• You will probably need a high credit score to qualify for a card with a lower interest rate, or one that will wave balance transfer fees.

To transfer or not to transfer?

It’s wise to weigh your pros and cons before utilizing the balance transfer technique, as it’s not for everyone and not for every credit situation. It can certainly be a useful tool to pay off debt and save some money in the process, but if it’s not carried out properly it can have the opposite effect on your debt.

If you’re considering going this route, make sure you go into it with a solid plan.

• Calculate and research what interest rate you will need from the new card in order to save money and pay your debt off faster.
• Calculate and research what interest rate you will need from the new card in order to save money and pay your debt off faster.
• Before transferring, make sure you will be able to pay off the debt in question. Budget for the necessary debt repayments that will be required in order to pay off the sum and plan to stick to your payments. Otherwise, you may end up with more debt than when you started.
• Do not spend on the new credit card until all debt is paid off. This will sink you into further debt and make it more difficult for you to pay it off in the future.