Everything you need to know about Balance Transfer Credit Cards

Posted by interfuse on August 11th, 2010

If you have existing debt on a credit card and are paying interest you may want to consider consolidating your debt onto a 0% APR Balance Transfer Credit Card. There are several pro?s and con?s to take into consideration before taking the leap (and some things to learn), but if your debt is substantial you will probably find that this is an excellent option for you. Let?s get down to the details, you will want to be sure you understand these prior to applying for any credit cards.

The con?s of balance transfer credit cards:

  1. Adding a new credit card to your portfolio can negatively affect your credit score, lowering the average age of your accounts.
  2. Most balance transfer cards include a one-time transfer fee that is added to the top of the total amount you are transferring, normally 3-5%, a small fee compared to 20% or even 30% interest. Be sure to check terms before applying.
  3. If the credit limit of your new card does not meet the needs to transfer your entire balance to a single card, you may need to setup multiple cards. Bearing in mind that additional credit cards and credit checks can decrease your credit score, you may want to verbally request a higher credit limit from the issuing company.
  4. If you cannot pay off your credit card in the no-interest or low-interest term, you may need to setup a second balance transfer card and pay an additional balance transfer fee at the end of your term.
  5. A credit check will be issued on application of your new credit card, too many checks in a 12-month calendar can negatively effect your credit score.

The pro?s of balance transfer credit card:

  1. Adding a new credit card to your portfolio will increase your total credit limit which could improve your credit score.
  2. By avoiding interest payments you can pay more to the balance of your credit card and decrease your total debt, improving your credit score.
  3. Some balance credit cards offer rewards for transferring a balance, check into this, you could earn money back, flights, cruises, ect.

Tips for selecting the right balance transfer offer:

  1. Get the lowest interest rate you can, 0% APR if possible.
  2. Get the longest term possible, most cards offer 6, 12, or 18 months no interest. Do your best to attain an 18 month term.
  3. Carefully read the terms and conditions before applying for a new credit card; be sure you understand them through and through.
  4. If you can find out what type of credit is needed (Fair, Good, or Excellent) prior to applying for the credit card, this can save you from an un-needed credit check on your credit report. If you do not know what category you fall into, you will want to find out from a credit monitoring service.

Tips for usage of your new Balance Transfer Credit Card:

  1. Do not make any purchases on your new card. Purchases made will accrue interest and be set behind the balance your transferred. In short, it will accrue interest until your entire balance has been paid.
  2. Never make a late payment, the penalties are harsh! These can include a late payment fee, immediate inclusion of high-interest rates, and devastating negative marks on your credit report.
  3. Pay as much as you can to the balance of your card without over-paying and stretching your finances too thin. The sooner you pay off your card, the faster any credit problems caused by your outstanding balance will be repaired.
  4. Though it may not be immediately possible, keep in mind that when the total balance of the card is less then 35% of the total credit-limit, your credit score will most likely improve.

There?s a lot to learn and a lot of details here to pawn over, however knowing the facts can save you thousands of dollars and if done right successfully repair a damaged credit score.

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Joined: August 11th, 2010
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