Balance Transfer Credit Cards - Why Switch Cards?
This article covers the advantages and disadvantages of balance transfers and the opportunity to do it.
Balance Transfer Credit Cards, Balance Transfer Credit Card, Credit Card Balance Transfer, Balance
Transfers, Balance Transfer
In recent years, credit cards have become a major component of everybody’s life. It started as a convenient
spending tool but now it has become a reasonable way to gain access to much needed credit in the form of
cash and loans. Keeping a balance on a credit card account is today a very common thing and interest rates
are a dominant factor in peoples’ daily finance.
As newer credit cards are issued every year, a balance transfer between credit cards is a common way for
many to reduce their monthly payments and fees to lending organizations. If the credit history is kept in
good standing, a balance transfer can be much easier and rewarding as most credit cards will be willing to
grant a new loan to obtain future customers. Most credit cards offer introductory rates that are as low as zero
percent and very often this low interest is kept up to twelve months.
Clearly, if someone has a very high interest rate on a credit card, he or she will save a lot of money if he/she
can transfer its’ entire balance into a different credit card. But a balance transfer between credit cards can
actually be used effectively for years by switching from one card to another while paying down the overall
balance. But that is a dangerous game to play.
Let’s take for example, Mr. X who opens a credit card account at a given rate, say 7.99%. As he uses his
card, he decides to carry a balance and just make the minimum payments. Within a few months, his balance
or principal will most likely be the same and his minimum payments will only be paying down a percentage
of the interest. Let’s assume now that another credit card issuer offers a 2.99% interest rate to Mr. X to
transfer his balance. Mr. X will save 5% right off the bat by moving his balance. Furthermore, let’s assume
that a year later a third credit card issuer offers 0% interest rate. In this case, Mr. X can transfer the balance
yet again, effectively eliminating the interest paid for the period offered.
But obtaining a balance transfer credit card has a few rules that need to be followed. We already mentioned
the fact that your credit history must be in good standing. The balance to be transferred should not be too
high or at least in the price range that the other credit card is willing to lend. Another important factor is
fixed fees that are involved in balance transferring. Because of the potential for significant balance transfer
fees, before making a final decision on balance transfer card it is very important to compare the net benefit
of the card offer. Simply put, because of added fees and surcharges, the other credit card offering a low or
even a 0% interest rate might not be sufficient to justify such transfer.
At least two more elements must be taken into consideration regarding balance transfer credit cards. First to
consider is the duration of the lower interest rate offer and second, is the amount of credit available for the
actual transfer. The duration must be for a sufficient amount of time and the interest rate at the end of the
promotional period must be lower or equal than the original interest rate. In this case, it is possible to find
many credit cards that will guarantee the same introductory interest rate for the entire life of the balance that
has been transferred.
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