What are credit card balance transfers?
In the days of credit cards, it is common that cardholders may want to utilize a credit card balance transfer. Unexpected expenses may have come up that created a situation that needs a quick remedy. Cardholders who want to keep their credit in good standings commonly use credit card balance transfers. Credit card balance transfers are very easy to find. They also come with very inviting offers that can make cardholders very happy.
Why People Do a Balance Transfer
Credit card balance transfers are quick and easy. Cardholders take all of the accumulated credit card debt and transfer the debt to another credit card account. Cardholders usually have a high interest rate on all of the old credit card accounts that they wanted to eliminate. The new credit card account offers a low interest rate or no interest to cardholders.
People use credit card balance transfers for the following reasons:
- Balance transfers may come with 0% APR. Creditors may transfer the balances to their credit cards and offer cardholders no interest for an introductory period. The introductory period may last from a few months up to two years. The length of time that cardholders are offered the 0% APR can greatly influence how aggressively they pay off the debt.
- Credit card balance transfers eliminate previous interest rates. Some credit cards have no limit on the amount of interest that credit card companies may charge. Others have high interest rates in the upper 20 percent range. Many customers that pay on maxes out credit cards may find themselves paying mostly interest and barely paying any of the principle. Balance transfers help cardholder pay more principle because of the low interest rates.
- Cardholders are able to pay off debts faster. Credit card balance transfers may eliminate all of the interest that cardholders pay. If cardholders up the amount that they pay each month, they may be able to pay off the debt in a fraction of the time that they would have with their old credit cards.
- Cardholders have available credit when they need it. When credit card companies transfer balances to new credit cards, cardholders have available credit on the credit card in case an emergency occurs.
- Cardholders can transfer the debt to another credit card if the interest rate after the introductory period is too high. Interest rates can skyrocket after the introductory period, and cardholders may not be prepared to pay the new interest rate.
- Cardholders use balance transfers to save their credit. Transferring balances to new credit cards help cardholders to maintain their good credit. Maxed out credit cards can greatly affect the cardholders’ credit utilization which can lower their credit score.
Things You Should Know About Balance Transfers
There are factors that cardholders must consider before jumping into a balance transfer. Make sure that the information is overlooked thoroughly before making a final decision. Consider the following factors when deciding to transfer a credit card balance:
- Some credit card companies charge fees to transfer balances. Some credit issuers call these fees transaction fees. Higher transfer balances have higher fees. For example, a $5,000 transfer balance with a 4% fee may cost $200. The transfer fees may be higher or lower than the 4%, depending on how much the credit card company charges.
- Check with the credit card company to determine what type of fees they charge on the credit card. Most credit card companies charge late fees and annual fees. Make sure that these fees are less than the fees that were paid on the old credit cards.
- Determine how much the new interest rate will be after the teaser rate ends. Balance transfers are quite enticing, but the interest rates may adjust very quickly. Cardholders should know this information before signing up for the credit card transfer.
- The teaser rate does not always apply to new purchases. Just because cardholders receive 0% APR on the transferred balance does not mean that they get the same rate on the new purchases. The APR on new purchases may be significantly higher than expected.
- Read all of the fine print before deciding to transfer with a particular credit card company. Credit card companies may leave out many important details that can influence cardholders’ decisions. Make sure that the credit card offers what cardholders expect.
Credit card balance transfers offer cardholders the chance to regain financial control by eliminating debt. Cardholder benefit from lower interest rates and fees so that they can have extra money to save for the future.