Balance transfer credit cards
Managing finances can become tedious when you’re struggling to pay current expenses as well as old debts. While many consumers strive to pay for purchases with cash or a debit card, there are times when this isn’t possible, and purchases have to be made with credit.
Of course the caveat to credit card use is the interest charges that are accrued each month that a balance isn’t paid in full. However consumers in good financial standing can transfer those outstanding balances to a balance transfer credit card, and sidestep mountains of interest while paying down their debt.
There are benefits and drawbacks to using a balance transfer credit card. As mentioned before, these cards give consumers a grace period, during which they are given a zero, or low percentage interest rate on their existing balance for a period of time. This decreased interest rate gives them a bit of breathing room, and time to pay down their debt without accruing interest, which would ultimately slow the pace of a final payoff.
Additionally, if the card user makes their payments on time, this option can potentially boost their credit, and foster a new relationship with a viable creditor. Users can also receive points, rewards and other incentives for transferring their balances.
Transferring debt has advantages and disadvantages
But giving consumers the ability to transfer their debt doesn’t come without a cost. Cardholders will likely be charged an upfront balance transfer fee, equal to a percentage of their outstanding balance. This amount will be lower than having interest charges accrue on top of a principal balance, but it is a cost to consider.
It should also be emphasized that this method is meant to benefit cardholders by offering a period of low interest, and is not meant for consumers to transfer a balance, and then keep adding to it. In fact, cardholders should read the fine print to make sure the introductory interest rates apply to both new purchases as well as the original transferred balance; if this is not the case, then any new purchases not paid in full will be charged a finance charge at a normal rate.
And finally, cardholders shouldn’t try to use balance transfer cards to forgo fixing their debt problems. Opening multiple cards and not paying down those balances sends warning signs to creditors, and they will eventually stop extending credit to you. So weigh these pros and cons, and decide if you can responsibly utilize a balance transfer card’s low interest rates to rapidly pay down your debts with no penalty from interest.