There are many people who find that they are facing debt balances that are making it hard to control their finances. Whether this debt is from simple bad decisions or due to an emergency that may have raised, the debt is there. For those who have credit card debt, they may consider a balance transfer credit card. This type of card allows someone to take one credit card balance and transfer this to a card. Many times, these types of cards are made for those who are facing high debt. But, the question is: Is a balance transfer credit card the best choice to make? The answer is going to depend upon the actual card, as there are quite a few things in which people need to watch out for.
[Read: Grow Your Disposable Income To Make Balance Transfer Effective]
Your Credit Score Aftermath
One of the main aspects to consider is how this type of card is going to affect your credit. There are many people who never think about this, they simply act on their desire to transfer credit card balances and go on. However, this can come back later to hurt them. The credit scoring companies may look at this as:
- The person cannot handle having lines of credit as they do not use them wisely
- The original account will appear as though you paid this in full so there may be some positive effects for doing this
- The actual score may stay the same if there is not a drastic change
This is why you need to look at all the possible ways in which his could affect you credit and make the best decision for you.
The Rates and Fees for Transferring Cards
What most people do not realize is that when they use a balance transfer credit card as it is mean to be used, they are going to get penalized with a balance transfer fee. This fee can be a small amount such as a one-time fee of $10, or it can be a percentage of the entire balance that you transfer. For example, 15% of the entire transferred amount. This can mean that you end up paying a lot more in interest than you would have if you had left well enough alone. These fees are often written in the small print of the credit card agreement. They should be studied carefully and the math should be done to ensure that you are not going to get yourself into more debt that you cannot pay.
Often a balance transfer credit card pulls a person in with the offer of a great introductory APR. The credit card may offer a 0% APR for the first ten months of opening and using the card. This is why most people consider these cards. However, before doing this, you do need to ask yourself if you can pay off the debt balance in the time frame specified for the introductory APR? Those who do not may find that they get themselves into more debt. A person also needs to consider the normal APR of the balance transfer credit card. The whole idea of using one of these cards is to help with saving money. You do not want to switch to a card that has a higher interest rate. Too many people find that the introductory rate is great, but the normal APR rate is almost double what they were paying.
Balance Payments and Managing Credit Cards
When a person utilizes a balance transfer credit card, they are now going to have two major credit cards in their possession. The main question to ask: How are you going to use both credit cards? For example:
- Do you plan on cancelling the old credit card?
- Do you plan to keep using this old credit card and rack up another balance?
- Will you simply let this credit card stay and not use it?
These questions are vital to ask yourself. The answers can let you know whether you are truly going to find value in using a transfer balance credit card, or if you would be better off to stick with how you make payments know and simply wait for the day in which you are debt free. Most people will find that the old credit card left open can have a positive effect on your credit, as it shows that you can manage credit wisely. However, if this is going to be too much of a temptation, do not allow it to remain open.
[Read: 9 Secrets for Building a Budget For Your Lifestyle]
In addition, a person needs to consider the balance transfer credit card credit limit. Is this credit high enough to cover the existing credit card? In order to truly reap the benefits of these cards, you do want it to have a higher credit limit to cover your balances. If not, you may be getting yourself into a financial jam that could affect you later. These cards can be great, if they are used wisely, but it takes quite a bit of research to know whether this is the right decision for you or not.
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