Credit Card Balance Transfers

Is it a good idea to use a credit card balance transfer special promotion?The Pros and Cons of Using Low or No Interest Credit Card Transfers for Debt Reduction

Most people these days have at least one credit card‚ and many of us have more than that. If you are in debt on one of your cards and want to try to clear it,  you have the option of transferring the balance to a low or no interest credit card. Many cards promoting these offers to consumers don’t charge interest (on transfers and purchases) for 6 to 15 months – sometimes even longer.

Is a Balance Transfer Right for You?

It is always wise to weigh both the pros and cons before making a choice. The big advantage you will receive is a lower interest rate after making the balance transfer. Credit card debt is expensive and it’s usually best to pay it off as quickly as you can afford to.

In addition, your credit rating may go up as you have eliminated the debt on the unwanted card. You may find yourself debt-free much faster with the right offer if you look at it as a short period of time in which to reduce the balance owed by as much as possible.

Fees and Payments

There are things to watch out for too. For example, there will almost always be balance transfer fees associated with the switch. The fee is typically 3 percent of the amount of debt being transferred. Some credit companies charge higher fees, as much as 5 percent or sometimes more.

Your minimum monthly payments may also increase. There will also be a limit on the amount of debt that can be transferred to the new card. You may find it is better for you to go with a card that has a slightly higher transfer fee but longer interest free period.

Read all the fine print so you know exactly what your rates are going to be before signing on the dotted line. One way you can bring down interest balances is to pay more than your minimum monthly payment, and in fact you really should pay off as much of your balance as you can afford, because paying just the minimum payment means you will paying off your credit card debt for years to come.

Also, low-interest offers are obviously only for a temporary period: they are only valid for a specified number of months, after which they will go up. Once this period is over you may find yourself paying higher rates than you did on your original card.

How Bad Credit May Affect You

Individuals with bad credit may have difficulty even obtaining a card that will allow them to transfer their debt balance. If you have poor credit, you may want to reconsider using this strategy.

If it is not an option for you, consult with a credit counselor or (if you are confident with your personal finance knowledge) work on your own to create a debt-reduction plan. You may also be able to negotiate monthly payments with creditors and may even be able to reach a reduced-price settlement on some of your incurred debt.

Conclusion

While there are some things to watch out for when transferring a credit card balance to a low or zero interest rate card, for many people it is a very good choice. Even with a typical transfer fee of 3%, getting 12 to 15 months with no interest means that you may be able to clear the debt within that time-frame. And that should be the ultimate goal.

The most important thing is to do your research. Read the fine print and make sure you are clear on all the terms and conditions. And don’t hesitate to call the credit card companies you are considering to get specific answers to anything you are unsure about from their customer service representatives.

You may find it useful to use comparison sites like NerdWallet where you can compare all the offers that are currently available, and filter them according to your own personal criteria. This helps narrow down what can be a confusingly wide range of options.