Pros & Cons of Credit Card Balance Transfer

Credit card companies are making big business these days. With the extensive use of credit cards by their customers, finance charges mount up very quickly. When such conditions arise, a possible solution is credit card balance transfer. This involves shifting one credit card balance to another credit card.

Credit card balance transfer is encouraged by almost all credit card providers because it attracts new customers. And for customers this is an attractive option because the new bank may offer lower interest rates and temporary interest-free periods.

So, what is the real deal with credit card balance transfers? Is this process part of a good debt management plan or just an offer to lure customers? When should you opt for a credit card balance transfer? To have these questions answered, it is necessary to understand the pros and cons of credit card balance transfer.

Benefits of Credit Card Balance Transfers

• Interest-free Period – You can save money from an interest-free credit card balance transfer. With a low APR (Annual Percentage Rate) and a sizable balance, a customer can save a considerable amount annually.

• Reduction of Debt – If the rate of interest is low, it implies that monthly payments can clear the outstanding balances sooner.

• Budgeted Borrowing – If the transfers are managed successfully, the interest rates can be minimized. Furthermore, this method of inexpensive borrowing can prove to be cheaper than a personal loan.

• Unsecured Debt – Credit card debt is unsecured. Since the lender does not have collateral, an alternative debt solution can be initiated if the credit card balance transfer fails to reduce debt.

Disadvantages of Credit Card Balance Transfers

• New Lines of Credit – The purpose of a credit card balance transfer can also have a contradictory effect. Sometimes consumers are given higher spending  limits with their new line of credit, which may result in additional spending that can destroy the very purpose of the credit card balance transfer.

• Availability – Interest-free credit periods are available only to those with a good credit history. Those with late and missed payments do not qualify for full benefits.

• Transfer Fees – Card providers usually charge a flat fee or a percentage of the balance to be transferred. This fee is added to the owed amount, implying that a customer may only be able to start saving on interest payments after a few months.

• Expiration of Introductory Rate – Once the introductory rate expires, the APR can become higher again, resulting in the debt situation returning to its earlier scenario.

A debt management plan is usually only effective when it is well thought out. If the credit card balance transfer is not promising enough to improve your financial condition, then it is better not to do it. On the other hand, a good credit history and an effective management of credit card balance transfers can improve your financial status. So, use the pros and cons above to assess and determine your current debt scenario, and opt for a credit card balance transfer only if it is capable of improving your current financial status.

You might also be interested in reading about – Debt Management Solution