Balance Transfers

Filed under: Credit Card Advice

A credit card balance transfer involves the transferring of an outstanding credit card debt, or outstanding credit card balance, from one credit card (Card 1) to another credit card (Card 2). Balance transfer can be a very effective tool in reducing existing debt and also in reducing any future debt.

Shop around for a credit card that has a lower interest rate than your existing card. By securing a lower interest rate on your existing credit card debt, you can reduce the total amount you will have to spend to pay off your balance.

While this can be a very efficient way to save money, be certain to thoroughly read and completely understand the often complicated terms of your new credit card`s balance transfer agreement. Sometimes the fine print can be confusing, or even misleading, at first glance. If necessary, seek advice from a financial professional so that you don`t end up being unpleasantly surprised by the misunderstood details of your new credit card`s terms. In the balance transfer game mistakes can be quite costly.

One of the most important detailed items to closely examine is your new credit card`s interest rate. Many banks offer introductory interest rates on balance transfers that are lower than their standard rates. They do this in order to entice people to transfer their balances. By law, U.S. banks are required to maintain the introductory interest rate for a minimum of six months.

Some banks will maintain the stated rate for an extended, specific period of time; for instance, one year from the date you first transfer your balance. After this initial, pre-stated time period, pay attention to how much the interest rate will go up. A significant increase in the interest rate after the introductory period may be cause for concern. Think carefully before selecting the right card for your particular situation.

Almost always, the banks will charge a balance transfer fee, which is either a percentage of the total amount of debt transferred or rather a simple flat-fee charge. If a bank states that they will charge 2% to transfer your balance and you intend to transfer $5,000, your transfer fee would cost $100. Some banks may state that they will charge a $300 flat-fee, whether you intend to transfer $250, $5,000, or $40,000.

Some banks will also charge penalty fees if you neglect to pay off your transferred balance within a given amount of time. Make note of how these fees are calculated. Is the bank going to charge you an exorbitant amount if you do not pay off the entire balance within one month? This might not be a problem if you`re transferring a small amount of debt, but if your debt is significant, this may be an impossible feat.

In addition, as with all credit cards, if you miss a payment, you will be charged a late fee. Pay attention to this detail. Some cards actually have the right to raise your interest rate permanently if you miss one payment, even by just one day. This is something to be taken into account when shopping around for a card.

In some cases, you may want to transfer your balance, pay it off as quickly as possible and then cancel the new credit card. Make sure that you have the right to do this, without some sort of penalty fees.

Add up the total costs included with your balance transfer and shop around to find the card that has the best interest rate and lowest fees for your specific situation. Not every deal works for every debt. What works for balance transfer may not work for Mortgages. Do your research. Your rate of repayment and the amount of money you are transferring should dictate which credit card agreement will work best for you.

Tags: ,

Are Balance Transfers Beneficial?

Filed under: Credit Card Advice 1 Comment

Credit card transfers are wonderful benefits, sometimes.  If you have received a credit card offer that is boasting being able to provide you with a very low introductory rate if you open a credit card and transfer the balance from another card to this one, look it over carefully.  There is no doubt that there are some real benefits here.  In fact, you may find that this is the perfect way to save yourself some money.  But, only when you read the facts will this become evident.

What Is It?

The first thing people want to know is just what is it.  What’s a balance transfer in the first place?  During a balance transfer, you will transfer the balance of one credit card to a new credit card.  Often, the new line of credit is offering a very low fee, interest payments or even zero percent interest during the first few months.  Their goal, of course, is to get you to pay interest over the course of the balance after that period. 

When you use a balance transfer, say from credit card A to credit card B, you are moving funds that may be under a hefty amount of fees or even those that are late, over the limit or offer a very large interest rate.  By doing this it can help you to come up for some air.

How To Save Money

But, moving money from one place to the next isn’t the best way to save money, is it?  With a balance transfer, you should consider several key things:

  • How long does the introductory interest rate being offered to you actually last?
  • Are there any balance transfer fees?
  • What is the new credit cards’ annual percentage rate after that introductory rate expires?  If it is higher than your currently paying, be careful.
  • Will cash advances, balance transfers and new purchases work with the introductory rate or is it limited?
  • How do other fees stack up to those that you are currently paying such as your annual fee, over the limit fees and late fees?

Now, consider how to make the most out of using balance transfer credit cards.  Your first order of business is to find out if in fact the potentially new credit card is one that offers you an interest rate that is lower than what you are currently paying.  Don’t look just at what you are paying during that intro period, but the actual annual percentage you will pay after that expires.  If that rate is lower, you’ll save money straight away.  If it is higher, you’ll have to make some consideration.

One thing to consider is how likely you are to pay off your debt within the introductory period.  Don’t exaggerate here, but be honest with yourself.  If you can’t pay it off, you will end up paying more for it in the long term.  If you can, then you are really going to save yourself money. 

Paying off your credit card debt while it is in a lower introductory rate or even a zero percent introductory rate period will definitely help you to save money as you won’t be paying any interest on the loan.  Working hard to do this can actually save you quite a bit of money.

But, Beware!

Not all credit card companies offering balance transfers are as honest and upfront as they could be.  Here are a few things you have to check out before considering.

  • Are there balance transfer fees, acceptance fees or other fees that will add to the cost?  Some banks will charge up to four percent in fees.
  • Is the introductory rate being offered the rate that you qualify for?  Some lenders approach you with the lowest rate they can offer, but this may not be the rate that you wind up getting, as you may not qualify for it.
  • What if you miss a payment or you do something that will cause your credit score to go up, will your interest rates jump, then, too?

When all of these things check out, you will find that balance transfer credit cards are a solid investment well worth tapping into.  If you are looking for a way to actual save money on your credit card payments, it is through this method, especially when you have the potential of paying off the credit line in the time of the introductory interest rate.

Tags: , , ,