Balance Transfers seems to be the best option when you find it difficult to pay your credit card bill at once and the interest on your card is so high. Balance Transfer is a facility provided by credit card issuers under which, you are allowed to transfer the outstanding balance from a credit card to another credit card to avoid interest or other unnecessary charges. Many people are aware of this facility and they know how to use it wisely, but there are a few cardholders who just go for a balance transfer without actually knowing all its pros and cons. Apart from the definition of Balance Transfer, there are many more things that one needs to know before availing of this facility. Balance Transfer might be a very good decision when you do it wisely after considering all the positive as well as negative factors. However, it can also be a worse decision when one doesn’t do thorough research before transferring their outstanding balance from one card to another. In this article, we will help you understand all things you should know about credit card balance transfers. Continue Reading for further information:
What is a Balance Transfer?
As discussed earlier, Balance Transfer refers to a type of transaction where you transfer your outstanding balance from one credit card to another. Cardholders generally transfer balance from a high-interest credit card to a card having a low-interest rate. What happens behind the scenes is that a card issuer pays your outstanding balance to your previous card issuer and they expect you to repay it. Suppose you have a credit card from issuer A that has very high interest and you have made a big transaction using this card and you are unable to clear your dues at once. Now, you would absolutely want to avoid high interest and a balance transfer is probably the best option here. So, you transfer your credit card’s outstanding balance to another card from issuer B and this card has a comparatively low-interest rate. In this case, issuer B will pay the outstanding balance on your card to issuer A and you will have to repay it to B. This is how balance transfer actually works.
However, the process doesn’t complete so quickly. You need to apply for a card and it is always better to go for a card with 0% introductory APR so that you get the maximum time to repay your bill without interest. There are many more things that you should keep in mind in order to get the full benefit out of the balance transfer facility and we are going to discuss the same below!
Things You Must Know About Credit Card Balance Transfers
It really seems to be a great option to transfer your credit card balance when you are not left with any other option and the outstanding balance on your card is constantly increasing due to high interest and other additional charges. But, there are also several disadvantages associated with this. However, these disadvantages don’t make balance transfer a totally unuseful option, but it is better to be aware. Following are some key points that you need to understand if you are thinking of a balance transfer:
It is not a Permanent Solution
Balance Transfer is not a permanent solution to your problem as you still need to clear your dues. However, it might reduce your stress as you will be paying a lower interest rate. But, you should still try to pay your dues as soon as possible as even a low interest can become huge over time.
There is a Fee Associated With a Balance Transfer
A Balance Transfer facility is undoubtedly a savior, but you need to pay a balance transfer fee whenever you opt for it. This fee generally ranges between 3% to 5% of the amount that you are transfering from one card to another card. So, you should make sure that this fee is not higher than the interest that you are currently paying as it doesn’t make any sense to transfer your balance to avoid interest by paying a fee higher than the interest itself.
You Need To Good Credit Score To Be Approved
No card issuer will randomly approve your balance transfer request without checking your past payment history as they want to make sure that you are responsible enough to repay your bills on time. So, it becomes quite an important task to check your cerdit score before you apply for a balance transfer as the higher your credit score is, the higher are the chances of the approval of your balance transfer request.
Bottom Line
Balance Transfer can help you a lot in financial crises, but only if you consider all the above-mentioned factors and take a decision wisely. Sometimes people just opt for a balance transfer without actually knowing a lot bout it and they regret it later. It is because balance transfer doesn’t give you a permanent solution, but it can just give you temporary relief. So, you should always try to pay the outstanding balance on your credit card every month to keep your cerdit journey smooth and hassle-free. However, if you have a really high outstanding balance on your card and you are finding it difficult to repay at once, you can definitely go for a balance transfer. Just try to go with a card with 0% introductory APR or a card with very low interest.
Read More: Your Guide To Use Credit Card Reward Points