This article explains how to make the most of credit card balance transfer offers.
Balance transfer credit cards can be a good way to combine debts and avoid a high APR on an existing card if they are used correctly. But customers should know what they need to know before they apply for a card and what problems balance transfer cards won't fix. Customers should know whether or not the introductory rate on a balance transfer card goes up over time, which would cancel out the benefits of the card in the first place. They should also know that bad credit history can make it hard to use a balance transfer credit card and that the only long-term solution is to have good overall financial habits and use balance transfers only occasionally.
Anyone who has used a credit card for any length of time has probably faced the threat of debt at least once. Maybe a paycheck doesn't clear on time, a friend doesn't help out, or a last-minute furniture sale doesn't bring in any customers. The amount owed is high, and the interest rate, which at first seemed like a theory ("I won't have to worry about that as long as I'm careful," the user thinks), now seems scary real. This can happen to anyone who takes a necessary financial risk, and there's nothing wrong with it. The only thing that matters is finding a way out of the problem.
And solutions exist. It's a common enough situation that a whole type of credit card, called balance transfer credit cards, has grown up to help people in this situation. Balance transfer credit cards work on a simple idea: they encourage their users to move their outstanding balances to a single card with a very low introductory APR, usually 0%. The user is then free from any higher APR that may have crept up on his or her existing card. It seems like balance transfer credit cards are the magic bullet of the financial world, getting rid of all financial worries in an instant.
But it's important to know that a balance transfer credit card isn't a magic bullet. Like any other financial solution, it has its own pros and cons. And the person who might want to use a balance transfer should keep a few things in mind when deciding whether or not to save money by consolidating debts with a balance transfer.
The most important thing to remember is that the introductory rate on most balance transfer credit cards doesn't last forever. If the user thinks that balance transfers will solve all of his or her debt problems, or at least put them off until some vague time in the future, that person could run out of the initial 0% grace period (which is usually twelve months) and be hit with an APR of anywhere from $11 to $18. This isn't a bad rate for someone who knows it's coming, but it could be a disaster if it comes as a surprise.
So, people who want to get a balance transfer credit card (or any credit card) should make sure to find out all the details about it before they decide to apply. Some cards also have features that could make or break the deal (like a high initial balance transfer fee) or that could be very helpful (some cards allow the user to maintain the initial 0 percent rate until all initial balances are paid off.) When it comes to credit or money, the customer who knows more is always the one who does better.
Another, maybe even more important thing to think about before applying for a balance transfer credit card is that balance transfers are not a cure-all for debt problems. They are a treatment, and they can only help if you have good money habits in general. Some balance transfer credit cards look at the applicant's whole credit history to figure out their introductory APR, regular APR, or both. This means that if the applicant already has financial problems, the card won't be able to help, but instead will make the problems worse. So, balance transfer credit cards shouldn't be seen as a way out or a magic bullet. They shouldn't be used as an excuse to run up big balances in the hopes that a timely transfer will erase everything. Instead, balance transfer credit cards are a tool that is only useful when used with general financial prudence.
No one is perfect, and if things go wrong and you can't see a way to pay off your debts right away, consolidating your debts can be a powerful (though often temporary) solution. But before deciding to apply, customers should first find out what their options are. They should also remember the first rule of finance: never think that there is a magic solution to your problems, and never let an attractive credit option take the place of common sense and a good financial plan.
