Credit-Card Balance transfer: Should You Do One?

by Lynnette Khalfani-Cox, The Money Coach

in Credit Cards

If you’re thinking about doing a credit card balance transfer, you may have a lot of questions or worries about whether or not you’re getting a good deal.

It’s smart to ask questions upfront, because not every balance transfer offer is a good one. So here’s how to know whether you should transfer a balance from one credit card to another. 

The Benefits of a Good Balance Transfer Deal

For starters, realize that in a lot of ways, a balance transfer done right can be a great idea. Ideally, you’re going to be able to get a credit card with a low interest – or at least a much lower rate than the one you’re currently paying on your existing credit card.

The benefit of this, of course, is that you’ll be able to better manage that credit card debt you’re carrying. This is especially true if you can snag a new card with a zero percent rate.

So, how does transferring your existing debt onto a new card help you?

First of all, it lowers your monthly payments. Since lower rates result in more affordable payments, doing a low-rate balance transfer makes it more likely that you’ll pay your bills on time. This ultimately helps you keep your credit rating in tact.

Lower interest rates also save you money, because you have to shell out less dollars to cover interest charges.

Since I’ve been in debt before, I know that one of the hardships, and one of the difficulties of trying to get out of debt is that not only are you paying off your principal amount ‑‑ the amount that you charged ‑‑ but you’re also trying to take care of all those interest expense. Banks and lenders tack interest charges and fees onto the principal amount of your debt as a way for them to make profits.

So even though it’s nice and convenient to be able to whip out a credit card, or to buy something on credit even when you don’t have the cash on hand, realize that you pay a price for that convenience and immediate gratification.

Needless to say, those interest charges can keep you from getting out of debt, month after month, or year after year.

Still, a lot of you might be saying: “With my salary and all my bills, I can only afford minimum monthly payments.”  Again, you should realize that only making minimum payments slows down your repayment efforts as well.

So when you really want to become debt free as quickly as possible, doing a credit card balance transfer can be one strategy to get you there sooner rather than later.

But if you opt to do a balance transfer, you want to look out for a couple of things.

Start by finding out the fees involved. When you do a balance transfer, most companies charge you a fee; it’s usually about 3% of the amount of the debt that you transfer.

There are some credit card issuers out there that occasionally waive that 3% fee, so do look out for those.

Additionally, pay attention to the time frame offered with a balance transfer.

Obviously, as previously mentioned, the best of all deals is if you can get a zero percent balance transfer. But how long will it last? Is it just three or six months? That’s not very attractive.

There are some good balance transfer deals out there that last anywhere from say 12 months to 18 months.

Over the time period when you have zero percent interest, you should still do your very best to make extra payments. Don’t just make the minimum payment, make extra payments so you can try and get rid of that debt, and become debt free a lot faster.

The other thing to remember is that, if you are able to make additional payments on your credit card bills, after you do a balance transfer, you should do it; this can also improve your credit score.

The boost to your credit score comes because about 35% of your FICO credit score is based on your payment track record. So that counts for a lot.

If you have a more manageable debt load and you’re able to pay off your credit card bills more readily, that can help you keep your credit score high.

For all of these reasons, and more, I think doing a balance transfer can be a great idea.

The Drawbacks of Balance Transfers

One downside of accepting a balance transfer deal is that, if you’re not very disciplined, this process can hurt you in the long run.

People who do balance transfers without a serious game plan often wind up just shifting debt around from one credit card to the next.

They don’t make any extra payments to get ahead. Or even worse, they use a balance transfer as an opportunity to not only load up on the new credit card, but also to go ahead and max out their old credit card.

That’s not good. You definitely don’t want to fall into any of those traps. So you really should try to be disciplined.

In the first part of the year especially, a lot of people are looking for ways to lower their credit card debt. If you’re trying to pay off holiday bills or just want to get a better grip on your debts, a credit card balance transfer could be just the thing that you need.


Related Questions:

  • transfer a balance
  • should you do a balance transfer
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Lynnette Khalfani-Cox, The Money Coach

Personal Finance Expert and Co-Founder at Ask The Money Coach.com
Lynnette Khalfani-Cox, The Money Coach is a personal finance expert, speaker, and author of numerous books on personal finance. She appears frequently as an expert commentator on television, radio and in print.

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