A Balance Transfer Credit Card can help you shift high-interest to low-interest debt and make your financial life simple and manageable. If you use it wisely, you can even get out of debt and enhance your credit score.
Credit cards for balance transfer are cards that allow you to shift all your outstanding balances from other cards into one outstanding balance.
You are given the benefit of a low APR, and you have to make a single monthly repayment instead of making multiple payments across many cards. Here are the pros and cons of a balance transfer card:
Pros
1. Many credit card companies offer an introductory 0% APR that’s valid for a few months. This rate’s valid so long you pay in full and pay on time. So, if you have large outstanding balances across many cards and you feel you are caught in a debt trap, you can take full advantage of the 0% APR and consolidate all your balances into one. In this sense, a balance transfer credit card helps save money by charging no interest.
2. The card makes life very simple. It consolidates all your credit card debts into one and you now have to make just one repayment every month. Tracking many credit cards and managing their payment, which often fall on different dates, is a daunting task. The balance transfer card takes this headache away. It increases your focus as well, because you are now focussed only on 1 debt.
3. Most balance transfer credit cards offer rewards. So, you repay your debts and enjoy the rewards programs too.
4. No collateral security (house, car, shares) is required to avail of a balance transfer card. So, you don’t have to worry about losing your home or other assets.
Cons
1. The new card company may charge high up-front balance transfer fees, and these fees can negate the advantages. Fees are charged because the credit card industry is of the opinion that card holders keep switching cards to take advantage of the 0% introductory APR without making a conscious effort to reduce their debt. Credit card companies typically charge 3% as balance transfer fees if the APR is 0%. The fees are lower for a higher APR. Tip: you must take the higher introductory APR and low balance because the APR is charged only when you do not pay in full and are late in making payments.
2. If you do not pay in time, or go above your credit limit, or if your check is returned, the APR will shoot to the maximum level and your credit score will plummet.
As you can see, the advantages of credit cards for balance transfer far outclass their disadvantages so long you are serious about consolidating and repaying your debt. A balance transfer card works very well for people who are financially disciplined, who pay their dues in full, on time, and do not cross their credit limits. So, go in for a balance transfer credit card if you have vowed to simplify your financial life and reduce your debt.