Balance Transfer Credit Cards – 5 Critical Points to Consider
Aubrey Clark
August 26, 2008
Nowadays balance transfer credit cards have become more popular as way for consumers to lower rates and payments on their debts. Mortgages are harder to qualify for and home equity lines are reserved for elite borrowers with tons of equity. Without the mortgage crutch, consumers are held hostage to the higher rates and payments that credit cards offered them in the past in exchange for their convenience. Balance transfer credit card issuers are attracting new customers in droves by offering lower rates and payments for an introductory period on balance transfers.
As with anything, the devil is in the details. Chances are, the credit card you want to transfer your balance to isn´t any better than the one you already have after the introductory period expires. So why do we still make the transfer? It´s usually because we have made up our mind that we are going to pay off, or pay down the balance we have during the introductory period. Or, we simply need the payment break, however. Just as in Vegas, the house knows the odds, and odds are that you won´t pay your balance down or off. This brings us back to square one, or worse.
Balance transfer credit cards can be a life saver if used in the correct way. Making smart moves and sticking with your game-plan is essential to ensure you are making a wise decision. We have listed below the top 5 things that you should consider before you execute a balance transfer. To keep things short, each point will give a simple explanation, details for each by following one of the links below.
1) Consider your Credit – If you have questionable or poor credit, chances are the credit card that you are considering is much worse than the one you have. Don´t be fooled by the 0% interest rate for 12 months, read the details. Unless you are 100% sure you can pay-off your balance during the introductory period you are setting yourself up for a larger mess. When the intro period is up you may not be able to qualify for another card due to your credit or the economy.
2) Balance Management - A lot of people have an "all or nothing" mentality about balance transfers. Meaning, if you have $10,000 in outstanding credit card debt and you are only allowed to transfer $5000 this may still be a smart business decision. If you can move $5000 to an interest free account, and pay that amount off in that time this could save you $1000 over the course of a year.
3) Credit Implications – Most people are unaware of the role that credit cards play as it pertains to your credit score. Credit cards are classified as "revolving credit", meaning that balances and interest rates change. This credit type is considered the most volatile by credit bureaus and is graded as such against your credit score, as much as 35% in some cases. Maintaining a low balance to credit limit ratio is the key factor that decides whether your credit card boosts your credit score or lowers it.
4) Balance transfer fees – Most credit cards these days charge a balance transfer fee. You have to weigh this fee into your equation when you´re deciding whether or not to transfer your balance. Most credit card companies charge a 3% fee and have an amount that they cap it at. Read the terms (fine print) before you apply to make sure you know what they charge. Also, some cards may waive the transfer fee but actually move it to another fee category like an application fee or account set-up fee. Again, read the fine print.
5) Penalties and Rate Changes – All credit card companies have a clause that basically says, "We can change your rate at any time, for any reason and you are helpless to stop us." However, during the intro period you are reasonably safe from that clause, UNLESS you make a late payment. All credit card companies have triggers that will instantly kick you out of the intro period and directly into the regular rates. Look at your grace period very close and consider putting yourself on a payment plan that is a month ahead of the grace period.
Aubrey Clark is an Author and editor for Direct Banc, a directory of balance transfer credit cards , specializing in fixed interest rate credit cards.Aubrey is a native of Destin, Florida but now lives in Atlanta Georgia since 1999 with his wife and four children.
As with anything, the devil is in the details. Chances are, the credit card you want to transfer your balance to isn´t any better than the one you already have after the introductory period expires. So why do we still make the transfer? It´s usually because we have made up our mind that we are going to pay off, or pay down the balance we have during the introductory period. Or, we simply need the payment break, however. Just as in Vegas, the house knows the odds, and odds are that you won´t pay your balance down or off. This brings us back to square one, or worse.
Balance transfer credit cards can be a life saver if used in the correct way. Making smart moves and sticking with your game-plan is essential to ensure you are making a wise decision. We have listed below the top 5 things that you should consider before you execute a balance transfer. To keep things short, each point will give a simple explanation, details for each by following one of the links below.
1) Consider your Credit – If you have questionable or poor credit, chances are the credit card that you are considering is much worse than the one you have. Don´t be fooled by the 0% interest rate for 12 months, read the details. Unless you are 100% sure you can pay-off your balance during the introductory period you are setting yourself up for a larger mess. When the intro period is up you may not be able to qualify for another card due to your credit or the economy.
2) Balance Management - A lot of people have an "all or nothing" mentality about balance transfers. Meaning, if you have $10,000 in outstanding credit card debt and you are only allowed to transfer $5000 this may still be a smart business decision. If you can move $5000 to an interest free account, and pay that amount off in that time this could save you $1000 over the course of a year.
3) Credit Implications – Most people are unaware of the role that credit cards play as it pertains to your credit score. Credit cards are classified as "revolving credit", meaning that balances and interest rates change. This credit type is considered the most volatile by credit bureaus and is graded as such against your credit score, as much as 35% in some cases. Maintaining a low balance to credit limit ratio is the key factor that decides whether your credit card boosts your credit score or lowers it.
4) Balance transfer fees – Most credit cards these days charge a balance transfer fee. You have to weigh this fee into your equation when you´re deciding whether or not to transfer your balance. Most credit card companies charge a 3% fee and have an amount that they cap it at. Read the terms (fine print) before you apply to make sure you know what they charge. Also, some cards may waive the transfer fee but actually move it to another fee category like an application fee or account set-up fee. Again, read the fine print.
5) Penalties and Rate Changes – All credit card companies have a clause that basically says, "We can change your rate at any time, for any reason and you are helpless to stop us." However, during the intro period you are reasonably safe from that clause, UNLESS you make a late payment. All credit card companies have triggers that will instantly kick you out of the intro period and directly into the regular rates. Look at your grace period very close and consider putting yourself on a payment plan that is a month ahead of the grace period.
Aubrey Clark is an Author and editor for Direct Banc, a directory of balance transfer credit cards , specializing in fixed interest rate credit cards.Aubrey is a native of Destin, Florida but now lives in Atlanta Georgia since 1999 with his wife and four children.
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