If you have racked up your debts on a high-interest credit card and unable to pay or you just want to cut up on the payments, a balance transfer to a credit card that charges very low-interest rates could be a good way to go.
However, does it always work for everyone? Is it a viable option for everyone? What’s the catch? Okay, before we proceed with the long list of questions that follow this option, here is all you need to understand about balance transfer and everything that comes with it:
A balance transfer is not equal to a debt repayment
Balance transfer should never be mistaken for a debt repayment. This is because it is not one. All it involves is an easier method to cut down on the payments. For example, if you have a high-interest credit card that charges you an extra $70 on your monthly payments, transferring it to a 0% credit card means that you will be paying your usual amount but with $70 less in the monthly payments.
Therefore, a balance transfer doesn’t mean that you will actually stop making the payments, but it is a cheaper option for you to save up on your usual payments.
Consolidation makes payments simpler
Having multiple credit cards means that you have to keep track of all of them and ensure that you always make all the payments for every credit card on time. This can be exhausting and demand too much of your attention and time.
Keeping in mind all the penalties that come with late payments, it can take a toll on your finances. However, consolidating all your balances into one credit card simplifies everything simply by giving you only one credit card to worry about.
Do the math first!
A balance transfer is not just as simple as switching from a high-interest credit card to a 0% credit card. There is involved a balance transfer fee. In the past, the balance transfer fees were capped and it was cheaper to do the swap. However, these days there is no cap and the balance transfer fees fully depend on the total amount as a part of the transfer.
This means that the more you transfer the higher the fees. In some instances, you will need to pay up to 3% of the total transfer amount! Therefore, before settling for this option, first do the math and see if the amount you will save in the long run will be worth the swap or not.
Transfer rates come with expiration dates
Balance transfer credit cards come with very low-interest rates just to lure you in. However, these rates don’t last forever. In fact, the moment you make a mistake such as a late payment, the interest rate will be increased instantly.
Most of the balance transfer rates last between 6 months and a year. From there, they might increase their rates that can be higher than the ones you are trying to run away from. Therefore, beware before making this bold step.
Regular transfers for a long-term solution? – Not really
It is very easy to get the impression that you can always apply for a new balance transfer to avoid paying any interest on your credit. However, this is not the case. In fact, applying for many balance transfer credit cards can give your credit score a nose dive. Therefore, please keep off such actions.