There are certain calculated moves that can prove beneficial in the world of finance today. One of the smart moves is making a balance transfer with credit card debt. However, it can become a bad decision in the long-run if care is not taken. We will be taking a careful look at how balance transfer cards is a smart idea and how they can help and hurt out decisions.

What are balance transfers?

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 is referred to as balance transfer. This opportunity can also be used to pay for debts off in full and faster.

What are the pros of a balance transfer?

There are positive benefits when a balance transfer is done correctly and with the intent of paying a balance off. Some of them are listed below:

  • 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 see a credit score increase during and after the process.

What are the cons of a balance transfer?

You can find yourself on a slippery slope in to a potentially worse credit situation if your debt consolidation is not done in the right way or when it is done for the wrong reason:

  • 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?

Before you use thee balance transfer technique, make sure you consider both the cons and pros properly because it is not for everyone and not for every credit situation. As much as it can be used to pay off debt and save some money, if it is not carried out in the right way, it can result in the opposite of what it was intended for. Make sure you go in to it with a solid plan if you are going through this route:

  • 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.
  • Endeavor you will be able to pay off the debt in question before transferring. Make sure you also 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.
  • Make sure you do not send on the new credit card until all debt is paid off. If this is not avoided, you will sink yourself in to more debt and it will be more difficult to pay off in the future.

Leave a Reply

Your email address will not be published. Required fields are marked *