Should You Consider a Balance Transfer?

If you find yourself falling behind schedule on your credit card payments, you should consider a balance transfer credit card.

But, what is a balance transfer credit card?

A balance transfer is when you transfer all or some of your debt to a different lender. This process gets mainly used to consolidate loans or to save in interest. In simpler terms, you will use a new card to pay off your old card.

When it comes to credit cards, you will get to transfer your existing credit card balance to another credit card. The new credit card will have a lower interest rate or a promotional balance transfer rate. You are essentially paying off your credit card debt faster and alleviating any financial burdens that come with high-interest rates.

To be successful, you will need to pay off as much debt as possible during the promotional period. You can then potentially save hundreds, if not thousands, on existing debt.

If you have multiple credit cards behind in payments, you can consolidate your debt with a balance transfer by consolidating all the cards to just one card. This can benefit you, as you will only be making one monthly payment instead of more.

Limited time offers might not be the best choice for you if your introductory period is over and your interest increases to a standard balance transfer rate.

You can be worse off than before if you’re unable to get your balance transfer paid off during the limited time offer presented by the card. If this could happen, it will be a better option to go with a permanently low-interest-rate card.

Your balance transfer rate will go back to normal if you miss the minimum payment during the promotional period. This rate could get as high as 23%! A promotional balance transfer is best suited if you are disciplined and stick to your monthly payments.

Rather avoid this option if you tend to forget to make payments on time.

Even though you can make purchases with your balance transfer card, the Canadian government strongly recommends you not.

Most credit card companies will enable you to make the purchase, but 80% of the purchase will be at the promotional balance transfer rate, and the remaining 20% will get charged at your normal purchase interest rate.

Some cards will let you earn rewards, but they only get given when you make a purchase and not for any cash advances or balance transfers.

It’s a good idea to rather forego the rewards for the time being and instead concentrate on paying off your balance in full.

You can’t make balance transfers between the same bank. It has to get done between two separate lenders. You will need to approach a different lender to apply for a transfer of your balance.

There are, unfortunately, a few disadvantages that you need to be aware of when considering a balance transfer.

• Your credit score can get affected – Your credit score gets affected by balance transfers every time you apply for a new credit card account. Your credit score will also get impacted if your credit card debt is above 30% of the credit limit. Your credit score can get reduced as you make on-time payments toward your outstanding balance.
• You can be at risk of more debt – You will get more credit once your balance transfer is successful, and you might end up using your old credit card to make purchases again. It would help if you remained disciplined to avoid additional debt. If you’re feeling too tempted, consider closing your old credit card.

Even though there are disadvantages to a balance transfer, transferring your balance can positively impact your finances in the long run. This temporary solution can ultimately save you hundreds of dollars in interest charges.

It will be worth it if you stay disciplined throughout this period to pay off your credit card balance faster, ultimately saving you money.