“Money is a good servant, but a bad master” - if you have money it will serve you and work for you well. But if you owe money to someone, that money will control you dreadfully. So if you treat your money carelessly, then you would get imprisoned in debt.
Are you messed up in a debt trap? Do you believe that ‘balance transfer’ method will help you manage your credit card debts well? Then, find out the answer to your queries here.
Balance Transfer - A brief insight
In simple words, a balance transfer method is the process of transferring of all outstanding balances from one credit card to a new credit card with low interest rates. Debts are a common phenomena in our lives. No one wants to pile up credit card debts. But, what will you do if you have racked up credit card debts? Well, in that case credit card balance transfer can prove to be an invaluable gem for managing credit card debts.
You might not be able to clear all your debts through a credit card balance transfer, but it does help to reduce some of your interests through its 0% or low interest programs. If you pick up a balance transfer card with an introductory 0% or low-rate promotion, then it would prevent your card from further financial charges. As for example - assume that you are carrying a balance of $10,000 on a card that charges 15% interest and your target is to pay it off in the next 12 months. If you transfer this balance to a card that’s offering 12 months at 0%, then you are able to save $831 in interest.
A walk by the seashore of balance transfer
Sinking into debt is like drowning in the sea. One way which saves you from drowning in the sea of debt is balance transfer. Are you struggling with credit card debts after spending too much during holidays? Then a balance transfer credit card would make you stand out of your plight. This would help you save money while you pay off your debts. The best balance transfer card is like a life saving drug when you are suffering from credit card debts.
Busy collecting huge amounts of debt? Decided to do a balance transfer? Then, here are some tips to enlighten you:
- Promotional period: Validity of 0% interest account is less. Because, some credit card issuers run short promotional rate periods to attract new consumers. And once this period gets over, you may have to pay higher interest rate on the new balance. So, the next time you get such offers, be sure of its validity.
- Transfer fees: Irrespective of whether you own a good credit or a bad credit, you will be charged a balance transfer fee. It is often 3% to 5% of the total amount you are transferring. With the help of a ‘no balance transfer fee credit card’, you can easily swap from a higher-interest credit card to a lower-interest account without having paid the additional percentage balance.
- Impact on credit score: Transfer your balance to a card which has more credit limit as compared to your balance. Because, this lowers your credit utilization ratio, which increases your credit score. On the other hand, if you transfer your balance to a card which has less credit limit as compared to your balance, then it will lower your credit score. So, you should check the available credit line before transferring balances, as it will have an impact on your credit score.
- Don’t purchase with balance transfer card: Since balance transfer credit cards offer 0% interest, many of you plan to make new purchases with that. But let me again remind you all that, these ‘0% interest’ offers last only for a certain duration. And once the introductory period is over, you will again rack up debt in your new balance transfer credit card. So, keep a watch at your card’s balance before making further purchases!
- Change your spending habits: You are absolutely mistaken if you believe that you can spend as much as you wish after transferring the balance to a 0% interest card. Transferring your balances is not a certificate to misspend your dollars. So, you should step aside from balance transfer to prevent accumulation of debt on your new credit card.
- Keep your original account open: Do not cancel your old card from which you transferred the balance. This might give a blow to your credit score. Just ensure that your card does not charge an annual fee.
- Make a payoff plan: Balance transfer credit cards are not at all easy to manage. So you should plan it out strategically. That is, have a proper entry and exit plan. You can also take the help of ‘credit card payoff calculator’ to plan out your budget.
Do you think that balance transfer will improve your credit score?
First, let me tell you that a balance transfer does not harm your credit standing directly. Credit scoring companies don’t take into account it as a factor to evaluate their criteria for calculating your credit score. But you cannot deny the fact that, a balance transfer leads to a change in your financial profile. Read the points below to know how a balance transfer affects your score:
- When balance transfer credit cards are used for overspending or avoiding payment, then your credit score will drop for sure. The time when you start spending more money and avoid the payments, you pile up debts which in turn affect your score negatively.
- Your credit score gets a negative boost when you initially apply for several cards with low introductory rates.
- The duration for which your credit accounts have been open covers 15% of your credit score. Therefore, the longer you keep your accounts open the better will be your score.
- Whenever you apply for credit, a hard inquiry is made on your credit report. One hard inquiry will reduce few points from your credit score. But, multiple hard inquiries within a short span of time may cause significant damage to your credit score. So, do not apply for balance transfer credit cards frequently.
- If you close your credit accounts, it will hurt your score. But when you keep your existing accounts open, the average age of your account remains high which boosts your score.
- It is always suggested to transfer the balance to a card with more credit limit. If you do so, then this will keep your credit utilization ratio low which increases your credit score. Always remember that -
Low Credit Utilization = High Credit Score
High Credit Utilization = Low Credit Score - Last but not the least, whether you do a balance transfer or not, always make payments on time, which is vital for maintaining good credit score.
Final Decision
Don’t make frequent balance transfer as it would harm your score. Balance transfer to another credit card is good if you follow the tips and guidelines. Don’t let money make a hole in your pocket. If you pay off your balance on time and control your overspending nature, then you would be able to make your credit score happy.
I hope this piece of writing has helped you clear your doubts regarding balance transfer. Now, if you are thinking of doing a balance transfer, just do it with confidence. If you take help of these above guidelines, then I’m sure you will stand as a winner in case of balance transfer.