This article talks about the pros and cons of balance transfers and how you can do them.
Credit cards have become a big part of everyone's life in the past few years. It started out as a convenient way to spend money, but now it's also a good way to get cash and loans, which can be used as credit. People often carry a balance on their credit cards, and interest rates are a big part of how they manage their money every day.
Since new credit cards come out every year, transferring a balance from one credit card to another is a common way for many people to lower their monthly payments and fees to lending companies. If the credit history is kept in good shape, a balance transfer can be much easier and more profitable, since most credit cards will be willing to give a new loan to get new customers. Most credit cards have introductory rates that are as low as 0%, and this low interest rate is usually kept for up to a year.
Obviously, if someone has a credit card with a very high interest rate, he or she will save a lot of money if he or she can move the entire balance to a different credit card. But switching from one credit card to another while paying down the overall balance is a good way to use a balance transfer between credit cards for years. But that's not a safe way to play.
Let's say Mr. X opens a credit card account with a certain rate, let's say 7.99 percent. As he uses his credit card, he decides to keep a balance and only pay the minimum. In a few months, it's likely that his balance or principal will stay the same, and his minimum payments will only go toward paying off some of the interest. Let's say that another credit card company is willing to let Mr. X transfer his balance for an interest rate of 2.99 percent. By moving his balance, Mr. X will save 5 percent right away. Also, let's say that a third credit card company offers a 0% interest rate a year later. In this case, Mr. X can move the balance again, which would mean he wouldn't have to pay any interest for the period offered.
But there are a few rules you have to follow to get a balance transfer credit card. We have already said that your credit history needs to be in good shape. The balance to be moved shouldn't be too high, or at least it should be in a range that the other credit card will let you borrow. Balance transfers also have fixed fees that are important to think about. Before making a final decision on a balance transfer card, it is very important to compare the net benefit of the card offers because balance transfer fees can be high. Simply put, the other credit card with a low or even 0% interest rate might not be worth switching to because it comes with extra fees and surcharges.
At least two more things need to be thought about when it comes to balance transfer credit cards. The first thing to think about is how long the lower interest rate offer will last. The second thing to think about is how much credit is available for the actual transfer. The length of time must be long enough, and the interest rate at the end of the promotion must be lower than or the same as the original rate. In this case, you can find many credit cards that will guarantee that the introductory interest rate will stay the same for as long as the transferred balance is open.
