What is a Balance Transfer and Is It a Good Thing?

A balance transfer is a process of transferring your debt from one credit card to another. It can be explained as when one moves the debt owed by a credit company to one card to consolidate your debt. Although it may seem to be a good idea, sometimes it can cause money problems more than what they can solve.

Why do a balance transfer?

The main reason for doing credit transfer balance is to help you consolidate several credit card balances into one credit card for easy debt repayment. This comes in handy if you make late payments because balance transfer cards have interest-free periods, giving you time to repay your debt. This largely depends on the banking rates and the credit card chosen.

Is it a good idea to do a balance transfer?

Doing a balance transfer can help those people struggling to pay their credit card debt. For example, the 0% introductory rate can help debtors pay their debt within a short time, saving money on interest. The viability of this idea is whether you will take debt repayment seriously within the set time frame of the APR offer or use it as a way to add more debt. 

Advantages of doing a balance transfer.

  • Save money paid on interest- through consolidation of high-interest credit cards to a balance transfer card. You can save hundreds or thousands of dollars depending on the amount owed to creditors. The introductory APR offer has a 0 % interest period to help you pay your debt within a short time, interest-free.

  • Debt consolidation- merging your credit card balances will help you consolidate your existing debts. This will remove the hassle of making multiple payments every month.

  • Pay debt faster- the introductory period offered on a balance transfer means that every dollar paid to it goes towards serving your debt. You will pay your debt more quickly because you will spend no money on interest

  • Lowers your credit utilization rate- although balance transfers lower your credit score for a short time, they can increase your score in the long run. A low credit utilization rate shows that you are responsible for credit use, boosting your credit score.

Disadvantages of balance transfers

  • You can add more debt if you are not focused on debt repayment

  • Some cards charge a transfer fee of 3-5 % percent that may accumulate quickly

  • Requires an excellent credit to use it

  • Offers on balance transfer last for a short time

How do you know if it is good for you?

For a balance transfer to work best for you, there are three things to consider;

  • You should possess a good credit score.

  • If you plan to pay your debt within the set period of the introductory offer

  • If you do not intend to use your credit card during the debt repayment period

Factors to consider when choosing a credit card.

When choosing a credit card, there are a few factors to look into;

  • Length of the introduction offer if you have a large debt to be paid

  • Go for that with a lower percentage on transfer and annual fees

  • The benefits that you can access with the card

Bottom line

Take a lot of caution when going for this plan if you only need to pay your debt. Getting a balance transfer card makes more sense if you are planning to pay your debt within a short time of offering before the promotional period of the new card ends. Also, if your goal is to consolidate and pay your debt, then it's a good idea but how you handle the process depends on you. To learn more about balance transfers, visit our website for better credit.

BJC