Credit cards for balance transfers are those credit cards that allow you to move your account balance onto the card. The idea of balance transfers is to consolidate your debts and manage your finances better. For instance, transferring your balance from an account with a high interest to one with a lower one will save you money.
Credit cards for balance transfers offer a few benefits to make them more appealing. One is a zero percent introductory annual percentage rate on the balance moved, another is a low-interest rate on the amount transferred, and yet another is a zero percent APR for purchases. The promotional rates often last one to two years giving you enough time to pay your debts without having to pay interest on it. While some cards do charge a balance transfer fee of three to five percent, it is still money saved in the long run if this fee is lower than the interest you’d be paying otherwise.
A survey done in 2017 showed that nearly half the people who own credit cards do not have any idea of how much interest they pay on their credit card debts. Of the approximately 1300 people with credit card debts surveyed, half of them didn’t know how much they paid in interest while the majority never had a balance transfer done even when they were more than $1,000 in debt. Of the approximately 1300 people, about 48% had approximately more than $2,000 in debt and about 38% had approximately more than $3,000 in debt. For people in debt, sometimes, the smartest option is to get credit cards for balance transfers to pay off the debt. It simply doesn’t make more sense to ignorantly or carelessly run up more debts in the situation. Of the people surveyed, about one-third of them had an average APR of 15% on their credit cards. About a quarter of them did not know what their APR was. As credit card debts are essentially loans without collateral, they have a high rate of interest on the debts. An APR of 15%, if the balance is not paid in full, will raise a financial penalty that could prove to be costly in the long run. About 62% of the surveyed had never bought credit cards for balance transfers with no APR to save on interest. Most did not even know that this option existed. About one-third of the surveyed were not sure if they could pay off their debts within the next year and a half.
Credit cards for balance transfers are both good and bad. Weigh the pros and cons before purchasing one. Some of the advantages of credit cards for balance transfers include the fact that you have to pay less interest with a balance transfer. By transferring a debt with high interest to a credit card with an introductory offer of no APR, you can save money. The best way to work this is to pay off the balance before the introductory period is done with. Of course, not having to pay interest means you will pay off your debts sooner because the money will go more into your principal than into interest. Balance transfers also save time. With a balance transfer, you do not have to track the number of accounts, each with its own debts and expenses. Instead, you can consolidate the balances on a single card and make one monthly payment altogether. Another benefit of balance transfers is that you can increase your credit score. Your credit utilization rate determines about 30% of your credit score. In other words, this is the revolving credit that you use. When you do a balance transfer and keep the card you transferred the balance from, the utilization rate on the old card will drop. In addition to this, the fact that you have a new credit card will increase your credit limit overall, which in turn will drop your utilization rate overall. This will increase your credit score. Simply put, the lesser you use your credit card, the better your credit score.
Of course, balance transfers come with their own risks. Some balance transfers charge a transfer fee of 3–5 percent of the debt amount which is added to your total debt amount and will cost you more if your balance is high. Moreover, with some balance transfers introductory offer limits of zero percent might apply to purchases and balance transfers while with some, it will apply only to balance transfers. If you pay your bill late, you could lose your promotional offer. Another risk is that you will not know your credit limit until you apply and get your balance transfer approved. Also, you cannot transfer from the same lender. Sometimes, a balance transfer may have additional fees which could eat into your savings.
While balance transfers can help repay credit card debts faster, the debtor needs to calculate the figures and work out what works best for him.
