Balance Transfer on Credit Cards

Credit card balance transfers can get a little complicated. A credit card balance transfer is basically when you open a new account for a new credit card and the balance you had on your old card is transferred to your new card. Many companies allow you to pay little to nothing in interest for a short time while you first complete your balance transfer. Balance transfers can be a great opportunity for you if you do it right, but balance transfers gone wrong can just make your situation worse which means it is very important for you to know the ins and outs of transfers.

Many companies charge a fee for balance transfers these days. Before credit card regulation in 2008 it was pretty easy to get balance transfers done for free, but now you can expect to pay between 1 and 3 percent of your balance in fees when you transfer your balance over. This might not seem like a lot but a 3 percent fee on a balance transfer of 5,000 dollars is 150 dollars which is a nice chunk of change. If you can find a balance transfer opportunity that does not cause you to pay anything in fees you should jump at the chance because those chances are rare to find these days.

Another thing to consider is that closing a credit card account abruptly can damage your credit score. This is not something you should do “just for the heck of it”; if you decide to go through with a credit card balance transfer you should do so because you are going to be getting a better interest rate or better overall service. You can also desensitize yourself to actually having credit card debt if you get in the habit of transferring your balance every couple of months. You can “play the game” and manage to have ultra-low rates for 3-6-12 months at a time with each card, but even if you are paying low rates you still have debt regardless. The ideal situation here is to make room in your budget for large payments to your credit card balance each and every month. Making minimum monthly payments is the worst thing you can do, even if the APR you have to pay each month is artificially low for a short time.

Remember that balance transfers is just a Band-Aid, if you do not fix the real problem, the reason you are running up large credit card balances, balance transfers will not help you out in the long run. A general rule of thumb is to not buy anything with your credit card that you would not buy with a debit card or cash. This seems like a no-brainer but so many people see credit cards as “free money”, it is anything but that. Over time if you neglect your credit card balance and only make minimum payments month after month you will end up paying 2-4 times the amount of what you really bought. Those pair of shoes that you bought “on sale” for 60 dollars might end up costing you 150 over 5-7 years.

The grass is not always greener on the other side. While a balance transfer could help you out if you are paying a high interest rate on your credit card balance currently, it will not get you out of the situation you are in, you are going to be in debt either way. If you are committed to getting rid of your credit card debt than a balance transfer could work for you because you will experience lower APR which will help you pay off your balance sooner. However if you are not serious about paying off your debt a balance transfer will do you no good in the long run. Upon learning about compound interest you can take advantage of it and become wealthy over time or you can be like millions of others and become a slave to credit card companies, it is not too late for you to make your decision!