Want to opt-in for a balance transfer credit card? Understand if it’s right for you
Credit cards can support you during a crisis period with adequate cash-flow! However, an uncertain long-term balance will eat away all your savings. It will also restrict you from attaining your financial objectives. What happens when you have a hefty balance on various credit cards? The conventional solution is debt consolidation to one single card, along with 0% introductory balance transfer offer. You might also want to close other cards.
For instance, you owe about $5,000 in a single card and an amount of $3,000 in another. You have the option to package both the balance and pay the total of $8,000 interest-free over any span of time the new card’s intro offer lasts. But that's not all about it. There are several aspects to ponder on before selecting balance transfer credit cards offer great deals and closing other cards. In case you are careless, you might have to pay more than you are entitled. And even worst, you may completely damage your credit.
Understanding a balance transfer
Simply put, in the credit card space, a balance transfer signifies that you shift to a selected balance from one credit card to another. Multiple credit card issuers provide introductory schemes that the new cardholders can use to shift a balance. They can then pay zero interest on that balance for a limited time frame.
The attractive introductory offers might seem like a favorable medium to buy out time for yourself since it's completely interest-free. You might feel you have the time to pay off all main buys that are expected. Gradually, you’ll realize that these transfers aren’t entirely free of charges. There might be a couple of loopholes. Hence, to be safe research your options thoroughly.
Want to opt in for a balance transfer credit card? Here are few essential factors to consider
- First and foremost you need to provide your prospective issuer the confidence that you can repay the debt. Want to qualify for a balance transfer credit card offer? If yes, it's essential for you to maintain a standard credit and available funds. You also should have a favorable financial status. All this denotes that it’s important to keep paying through the present card, as you search for another one. When you miss a payment, your credit score is adversely affected.
- Second, you must consider your credit utilization. It can be lopsided if you wish to opt-in for a debt consolidation program shifting all the credit card expenses in one card, closing the credit cards you own presently. It can be damaging. The credit-scoring algorithms like FICO will reprimand you anytime your credit card limit reaches its maximum. You can also be penalized when the credit card usage is extremely high.
- Thirdly, it's essential to keep your old credit cards active. It is true even if you want to transfer its balance to another credit card. The credit scoring algorithms offer credit for loyalty. Hence, till such time you have to repay a substantial annual payment on your old card, make sure that it's open. So now you are aware of things that you shouldn't do. Hence, let's focus on things you should do. Here let’s address your objectives.
This is applicable if you are willing to attain a long-term credit boost! So if you wish to enhance the credit score, the best way is to keep on repaying timely. You may also want to balance the credit utilization. And before you have anything else in mind; ask your credit card issuers whether they can limit your increased APR credit cards from the fresh charges. Know that this is not akin to requesting them to minimize your credit limit. It might negatively impact your credit.
- Fourth, let’s look at your long-term credit enhancement objective. Don’t place all the balance on a new, single credit card. Instead, decide to shrink your existing balances by approximately a half or third. Opt-in for a compact balance transfer credit card offer. However, attempt to consolidate just 30% of the credit limit of your new card. A bank will start to look upon you as a liability if you enable various account flows to the maximum limit. Furthermore, even FICO watches closely on the way you manage debts vis-a-vis your total financial situation. Make sure you keep your previous credit card open as the credit scoring algorithms reward people for their credit history.
- Fifth, if your objective is short-term cash savings, then opting for a balance transfer offer is the right decision. It's a smart call to opt-in for the lowest “go-to” rate and the longest introductory time. You may consolidate a significant chunk of your outstanding debt to the zero-APR card. Post that, pay the way you can on any balance on remaining cards.
The offer of a balance transfer credit card might seem lucrative! However, there are pros and cons to everything in life. Today, you will find plenty of options to select one. But arriving at an informed decision is essential. It is where you need to keep the above-discussed factors in mind and choose wisely.
More to Read: