Balance transfer is a worthwhile option to consider if you run a high interest balance on your credit and want to shift your balance to a card that carries 0% percent or extremely low interest rate. This means you pay low monthly payments saving a lot of money in the process. You will also be able to clear your balances sooner, resulting into a higher credit score. Here are five tips to consider if you want to transfer your balances without being at risk of attracting a high interest rate in future.
1. Find out if you really want to go for it – You can get balance transfer offers with zero percent interest rate for a period of six to twelve months if you have a good credit rating. This means for this period, you can pay off the balance on your credit card without worrying about the interest charges. However the flip side is there can be balance transfer fees applicable on the balance which is usually between 3 and 5 percent of the balance being shifted to the new card. Now this is a factor that you may consider if you have a good credit rating, and feel that you are paying more than needed by way of such types of fees. In that case, instead of a balance transfer, you can go for debt consolidation loan or a low interest credit card.
2. Your credit score can affect your balance transfer and vice versa – It is always better to check your credit score to find out if your application for a balance transfer can be accepted. For this, you can get in check with the three major credit bureaus, Transunion, Expedia and Equifax and get credit score to find out your actual credit history. All the three bureaus may not give the same score but you can figure out your credit rating based on the average, which is precisely what lenders do. If your credit rating is good, you will get a lot of attractive balance transfer offers with zero percent interest rate for a fairly long period, but if it is bad, then it is better to do some form of credit report before apply for a balance transfer.
3. Do not close the old card you transfer balance from – If you close the account of the card, from which you transfer balance, it will affect your credit history which is one of the biggest factor for a credit score. Also, applying for many credit cards at one time can also affect your credit rating If you have a credit card from a certain company, do not apply for another one from the same company, because in any case, you will not be able do to a balance transfer between the these two cards of the same company.
4. Do not incur more debt – Do not be under the illusion that just because there is a 0 percent balance transfer on your credit card, it applies to purchases as well. New purchases may carry a different rate altogether, so it is important to go through the terms and conditions of the balance transfer agreement carefully. This is why financial experts say that you use the balance transfer card only for the purpose of paying back the balance, and not use it liberally for credit purchases. You may get cards that offer zero percent interest on balance transfers and new credit purchases but they require you to have an excellent credit score.
5. Repay your outstanding balance on time. – You get a balance transfer card so that you get relief from the debt burden, and take opportunity to pay the outstanding amount in time with 0 percent or negligible interest rate. If you default on your payment, the credit card company may just repudiate the 0 percent offer or put you on regular interest rate, which defeats the purpose of balance transfer in the first place.