Balance transfers can a blessing or a curse, depending on where your personal finances are and who you sign up with. A balance transfer is a familiar concept, you’ll see it advertised frequently on TV and billboards. Basically, to entice new customers, lenders will offer an interest-free or low-interest period for any balance you transfer from another credit card. The period is usually around 4-6 months, after which of interest will be charged until you have paid off the debt.
So, is it for you?
Have You Investigated The Usual Interest Rate?
We might optimistically think that we’ll definitely have paid off the credit card by the time the interest-free period elapses, but real life doesn’t necessarily go like that. An emergency could arise, we might not stick to budget, you know the drill. It’s important, therefore, to be completely aware of what costs you are up for once your honeymoon period expires. What is the interest rate? Are you going to be better off sticking with your current card?
Are You Aware Of Fees?
You might be looking at six months without interest, but what fees are involved with your new lender? Are the fees going to negate the money you save on interest? Remember, balance transfers are a tool for the lender as much as they are a tool for the recipient.
Will You Use The Card?
0% interest applies only to the balance transfer amount, and your repayments pay off the transfer amount first. Which means, if you make purchases on the new card, they’ll accrue interest (sometimes high interest) while you’re paying off your transfer amount.
Do You Always Pay On Time?
Balance transfers can be a great tool, but only if you’ve managed to get a reasonably disciplined repayment scheme already in place, and have managed to stick to it over a period of months. Better to be regularly paying over the minimum rate every month, reducing debt at a sustainable level. That’s step one. Debt consolidation and balance transfers are step two.
Will You Cut Up The Card?
There are two major risks with balance transfers; the deal that looks too good to be true, ends up hitting you with major fees and high interest. The other risk is if you haven’t gotten your credit usage under control. Where people often get into difficulty is when they’ve transferred one balance, but continue to use the first card, increasing the debt level.
Do You Need Some Breathing Space?
If you’ve managed a solid period of repayment, and just need a little help, experts suggest a balance transfer could be a useful tool. The money you save on interest could be put towards extra repayments, helping you to get ahead on your debt reduction.