Things You Should Know About Balance Transfers

17 Jun, 2017 / By

Balance transfers have a way of tempting you into obtaining another credit card. They provide lucrative terms and free up your available credit on another credit card. Before you jump on the next great offer that you think you found, you should know these 6 things about balance transfers.

Balance Transfers are not Free

More often than not, there are fees that are tied into the balance transfer. This means that even if you are getting a 0 percent interest rate on your transfer, there is still going to be a fee. Each card will have specific requirements as far as how much the fee will cost. For some companies, it is a one-time fee that is a predetermined amount while for others it is a percentage of the balance that you are transferring. When you are thinking of transferring a balance, make sure to read all fine print – you might find that there are exorbitant fees that make the transfer not worth it.

Interest Rates are Oftentimes High

Most credit card companies offer a lucrative promotion to get you to transfer your balances over. Once you transfer, however, they only give you a few months to a year of that zero percent balance. After that, you are subjected to a higher interest rate. If you are unsure about this interest rate, you could be paying a larger amount on the leftover balance than you originally paid on the previous credit card. Make sure that you know when the promotional period ends and determine if your balance will be paid off by then to avoid the higher interest rate.

Credit Lines May be Less Than Expected

If you apply for a credit card in order to transfer a certain amount of debt over, you might still run into trouble. You are not guaranteed the credit limit that you need. If you apply for the credit card and then are not provided with the amount of credit you need, you could be hurting yourself by having more credit outstanding and not enough room to transfer over your entire amount of debt.

Fees Can Occur After Your Promotional Period

Another reason to read the fine print of your credit card agreement is to determine what your fees will be if you do not pay off the balance transfer during the promotional period. Some credit cards will charge you a certain percentage of the balance that is left once the promotional period is over in addition to the interest that has accumulated from the beginning. In order to avoid this from occurring, determine how much you can afford to pay every month to see if it will be enough to have the balance down to zero before your promotion expires.

Credit Utilization Rates Affect your Credit Score

It is important to keep in mind the fact that your credit utilization will change as a result of opening a new credit card. You will now have more credit available, which lowers your ratio of how much credit you have outstanding versus the total amount of credit available to you. This can be a good thing in the grand scheme of things, but if you run up your old credit card that you just transferred the balance from in addition to the balance transfer that you just did, your credit utilization rate will go up and your credit score will go down.

Balance Transfers Give You More Credit

If you have a spending problem or are always using a credit card as your fallout when you need money, a balance transfer might not be the best idea. Even though you are saving money by obtaining a zero percent interest rate on your existing balance, if you run up more credit on your old credit card, you are putting yourself in danger of not being able to pay your bills as well as maxing out your credit. If you cannot control your spending or do not plan on closing the old credit card, a balance transfer could be trouble.Balance transfers can be helpful in certain situations.

The key is to be very careful with your money and how you use it. Do not think that because you have an open credit card that you can just rack up the debt. Instead, read all of the fine print, figure out your budget, and use your credit wisely. In the end, you could end up saving money and improving your credit score.

Jennifer Hamilton

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