Pro’s and Con’s of Balance Transfers

A balance transfer occurs when you use one credit card to pay for the debt on another card and receive a lower APR rate. Balance transfer credit cards are designed with the idea that you will transfer the debt to the new card, which usually has a low introductory interest rate, and then keep paying on the new card.

Just like any other credit card, it is important for consumers to note the potential advantages and disadvantage of using balance transfer credit cards rather than paying off the debts on the same card.

Pros:

The pros of the balance transfer option depend on the exact offer you receive, but have a few common features among cards that make it worth considering.

•       One main advantage is the immediate lower payments due to lower interest rates. Most balance transfer credit cards start with a low introductory rate. A rate between zero and three percent interest is common for the balance transfers, though the exact rate will depend on the card you use and your credit score.

•       Balance transfer cards can help you work out a better spending plan. Since balance transfer cards are designed with a low interest on balances brought onto the card from another credit card, the spending APR is usually very high. As such, it helps you avoid overspending on the card.

•       Paying off debts is often easier with the card. Since the cards usually have interest as low as zero percent for around one year, paying off more of the debt is easier than a high interest rate because all of the money put onto the card is paying down the debt until interest starts. Paying more than the minimum will clear the debt faster.

•       Individuals with good credit scores and who pay their card on time each month during the promotional period might be offered extended promotions. Extended promotions can help maintain a lower rate, making it easier to repay the debts.

Cons:

While the advantages of the credit cards make the card seem tempting, it is important to consider the potential disadvantages of the card as well. A balance transfer credit card does have a few negative considerations.

•       A balance transfer card is not always easy to obtain. Usually, getting the card in the first place requires good credit and getting the low APR of zero percent requires a great credit history report. Individuals who have poor credit or even moderate credit might not be eligible for the card.

•       The interest rate after the promotional period on the card is very high. If the card is not paid in full by the end of the promotional period, the remaining balance is often charged a rate of 20 percent or higher.

•       Transferring the balance will result in a transfer fee. The fee is usually around three percent, but might be higher depending on the card.

•       The disadvantage that might hurt many individuals is the fact that the promotional rates are not guaranteed. One missing or late payment on the card will result in immediate termination of the promotion and the full high fee charges.

Balance transfer credit cards make sense if you manage your finances carefully. Fortunately, with a little planning the card can result in improving your credit score and working toward paying off your debts.

Article by Richard Greenwood an experience finance blogger who runs a number of finance comparison site designed to help people save money or rebuild credit. Secured Credit Cards 4U for example offers credit cards for bad credit along with prepaid credit cards that help build up credit scores safely.