Pros and Cons of Balance Transfers
Is transferring money from one card to another a good idea? Transferring some or all of your credit card debt to one that includes an introductory interest-free period can help you move toward a debt-free life; however, there are some things to be aware of. Consider these pros and cons of balance transfers:
Pros
1. Interest-free debt
Your most significant pro for making a balance transfer is getting a break from the interest added to your balance. Depending on the offer, that may be up to 21 months. Making a balance transfer will allow you to take a real bite out of your debt and make progress toward getting rid of it completely.
2. Convenience
The more monthly bills you need to pay, the greater the chance of missing a payment. A balance transfer lets you consolidate the balance on several different cards into one, decreasing the number of monthly payments you need to make.
3. Motivation
Too often, people get trapped in a cycle of debt. When they feel like they’re in over their heads, they continue swiping and spending as they please, figuring that another few hundred dollars won’t make a difference to the huge mountain of debt.
Many people find that taking this significant step toward paying down debt motivates them to be more careful with spending habits. After all, you aren’t trying to get rid of your debt just so you can rack up another bill.
Cons
1. High-interest fees
At the end of a predetermined amount of time with your new card, you’ll pay unusually high-interest rates. While you may plan on paying down your balance before the interest rate kicks in, you may not be able to do so. Also, many balance transfer cards do not offer the same interest-free deal for new purchases.
2. Transfer fees
Most balance transfer offers charge a minimum of 3-5% of the balance you’re transferring. So, while you may not be incurring interest, the transfer isn’t always free.
3. You need excellent credit
One of the biggest problems with balance transfer cards is that those who need them most don’t qualify. This is understandable, of course — the new credit company doesn’t want to wind up paying for delinquent credit card bills. But if you’re considering a transfer, bear in mind that you usually need to have a good-to-excellent credit score, one of at least 700.
4. Increased monthly bills
Often, a company offering to accept interest-free balance transfers will only accept a portion of the amount, adding one more monthly bill to track. This extra bill increases your chances of missing a payment. If you can’t transfer your entire balance, prioritize your interest-free payment, but don’t neglect other bills.
5. Negative impact on your credit score
With the recent changes to the VantageScore system, having less available credit while using a small percentage of it is considered intelligent. Opening a new card without closing an old one means you will have more available credit and may lower your score. Also, having lots of available cards will make lenders view you as a risk.
If you’re sinking in credit card debt but don’t think a balance transfer is for you, we can help! A personal loan might be a solid first step toward debt freedom. So call, click, or stop by Elevate Credit Union today, to hear about our competitive rates and options.
