Basics of Credit Card Balance Transfers
A credit card balance transfer is nothing more than moving the balance of one credit card to another. This is done to take advantage of the lower interest rate offered by the new card. When managed properly this process can save you money, but it requires a great deal of diligence. If the transfer is done for the wrong reasons, like avoiding paying credit card bills, you can end up with serious credit card debt.
Credit card balance transfers can also lower your credit score, so it is important that you have a good reason to opt for this process. Before you proceed with a balance transfer or even sign up for a credit card balance transfer, know your options and get some questions answered. This can help you devise a good debt management plan.
Introductory Interest Rates
Credit cards offer a low introductory rate for balance transfers. Introductory rates are supposed to last for a minimum period of six months, but typically may last up to a year. This period might give you time to pay off your balances without having to worry about finance charges. The Annual Percentage Rate (APR) should be as low as possible, but typically the balance transfer APR is different from the APR for purchases.
Have the following questions answered before you opt for the transfer:
- How long is the introductory rate?
- What is the Annual Percentage Rate after the introductory rate expires?
- Is the introductory rate applicable to transferred balances and new purchases?
- Does the card have an annual fee?
- Are there any balance transfer fees?
Remember that a balance transfer can affect your credit score. High credit card balances reflect negatively on your credit history, indicating that you have more debt than you can handle. So ensure that the process will not adversely impact your credit score.
Also, do not neglect your old credit card after your credit card balance transfer is complete. Ensure that you receive the billing statement with a zero balance on it. This is highly recommended because any mistake in the balance transfer will be reflected on the billing statement. If you happen to ignore the billing statement, you could end up missing a payment and be charged with a late fee. Eventually, this could be recorded in your credit report as well.
It is always good to base your financial decisions on an effective debt management plan. A credit card balance transfer is a solution only for those with definite financial plans. Do not use this option to avoid making payments. Doing so can lead to debt accumulation on the credit card, which can be a very expensive decision.
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