Benefit of balance transfer

• Balance transfer fees:
  Most of the credit cards companies will charge you transfer fees. Usually, the fee is the percentage of the whole transfer amount, which is in the range of 2-3 % of the total debt amount.  If you have a balance transfer credit card you will not be required to pay such kind of fee. Whether the fee is waived for a period or forever depends on the type of credit card that you have. At times, in order to waive off the fee, you need to make the balance transfer while filling in the credit card application form. While at other times, you must pay off the entire balance transfer amount by the initial six months, extending up to a year, in order to hold legibility for getting the fee waived off. Interestingly, a few credit cards may not charge the applicable fee on balance transfer, because they enjoy the benefit of receiving succeeding finance charges.
• Finance charges
  Another very important benefit is the low interest rate which is charged on such cards. The best deal is when you get 0% APR for life of the balance transfer. This way you need not pay interest on the transferred balance. Further, the rate of interest rate accelerates on other purchases made via the card; however, the balance that has been transferred is free of any interest fee. You must consider the interest rate before choosing a balance transfer credit card. You should also be aware of the terms and conditions that you are required to fulfill in order to be entitled for lower introductory fee.
• Consolidating debt
  A balance transfer’s credit card helps you to consolidate your debt. If you have all your debts under single card, paying it off becomes convenient, and also allows you to keep a track on your purchases and pay off accordingly.

Besides helping you bat out of a problematic financial situation, balance transfer can earn you money today. What? Sound’s unbelievable! It’s surprising but true; a few credit card companies are offering cash back rewards for processing the balance transfer, and have even stopped charging the fee applicable to do transfer balance to the new card.

It is important that you should learn from your mistakes and balance transfer is a good opportunity to know your fault. It’s a perfect way to know when to put a halt at your purchasing, and devise a plan to repay your loan

Does the card levy a lot of fees?

Fee is one way in which credit card companies earn a lot of revenue apart from the interests earned on card debt. So, the benefits that a balance transfer card offers you can vanish if you are not aware of the different types of fees charged. For example, a high late fee or over the limit fee is not desirable. But what you must surely check is whether there is an annual fee and if yes, how much. An annual fee of over $50 only adds to your outstanding debt. Most credit card companies charge a balance transfer fee which is around 3% of the balance transfer amount. You must take this additional cost into account at the time of taking a call. Some credit cards may charge a bigger balance transfer fee as well.

Introductory period long enough for your credit score

Some credit cards may offer introductory periods as long as 21 months but it might not necessarily be true in your case. The introductory period varies based on your credit score in most cases, which means that if you have an average credit score, the introductory period might be shorter than 12 months, which could really lay all your plans to waste. So, before you apply for a balance transfer card, you must check what the introductory period will be for someone with your credit score.

Initial and final APR should be impressive

For you to go for a balance transfer credit card, it is important that the new card offers an impressive initial and final APR. Good balance transfer credit cards usually offer an introductory rate of 0% during the introductory period after which the APR will go up. The final APR shouldn’t be too high and should be less than 20% if you are to even consider taking the credit card. If the final APR is high, it could represent a risky proposition especially in the scenario where you are unable to repay your outstanding credit card debt before the end of the introductory period.

The card should offer good savings and good credit limit

Transferring your balance from one card to another is not something you should do often as that will affect your creditworthiness. So, if you plan to go for balance transfer, make sure you pick a card that offers a good credit limit. Higher the credit limit, better it is for your credit score. The card should offer other credit card rewards as well so that you can make impressive savings.

Do You Qualify?

The first order of business when considering applying for a balance transfer credit card is to determine whether or not your credit is in good enough shape to avail you of the offer you have selected. To be eligible for the very best deals out there, you need to have very good to excellent credit, meaning a FICO score in the neighborhood of 750.

This means that you must have some sense of what your credit score is to be able to judge whether or not the possibility exists that you will be approved for the offer you have chosen. Also, another thing to keep in mind is that the new card must have a high enough limit to handle the amount of debt you wish to transfer.

Understand that there is a chance you may not be approved for the exact offer that lured you to look into transferring a balance in the first place. The zero interest promotional period offered to you may be shorter, for example, or the new card issuer may only approve a portion of the amount you have requested to transfer.

Know The Cost

There is no such thing as a free lunch and free balance transfers are similarly elusive. While certain banks from time to time do extend remarkable offers such as 0% interest on transferred balances accompanied by no balance transfer fee, typically the charge associated with transferring a balance is 2 or 3% of the entire amount. Some banks may even charge more, such as 4 or 5%.

Do The Math

The whole purpose of transferring a balance from one card to another is to save yourself money in interest charges. If the new card charges a fee for the transaction, you first and foremost want to determine whether or not the amount you can reasonably predict to save in interest charges will offset whatever the amount of money that transferring the balance will cost you.

Develop A Plan

The way to make the best use of transferring a balance from one credit card to another with a low or no interest introductory period is to pay down the balance within the promotional time period. Every dollar of each payment you make during that time will go further, as it will be put toward paying down your balance as opposed to covering interest charges. Outline a repayment plan using the length of time of the promotional APR as a guide. These time spans can range from 6 months to 2 years, depending on the offer. See if you can realistically handle making the monthly payment necessary to pay off the entire balance during that timeframe. If not, figure out roughly how much of the balance you could conceivably pay down.

Do Your Homework

Research different credit cards to find one that has an acceptable APR once the introductory low interest period expires, just in case you are unable to meet your goal of paying the transferred balance off in time. Otherwise if, after the promotional time period ends, the new card’s APR shoots up to an astronomical rate, you may find yourself in a similarly bleak debt situation as when you started.

In the short term, a balance transfer may temporarily decrease your FICO score, but overtime it can prove to be beneficial. When a consumer opens up a new credit card. Fifteen percent of your FICO score is determined by the length of your credit history, this comes into play when doing a balance transfer. If you transfer a balance from an old card to a new card, it can temporarily bring down your credit card score. As long as you continue to pay your bills on time, the effect on your credit score is minimal.

Your FICO score could be further affected when you apply for a credit card. Every time you apply for a credit card, the credit card issuer will check your FICO score to determine whether or not you are a low or high right consumer. This is labeled as a “hard inquiry” and these types of credit checks can decrease your credit score. A “hard inquiry” if conducted every four months or so has a minimal effect. Inquiries like this will only take off up to eight points off your credit score.

Balance transfer offers can affect your FICO score by altering your debt-to-credit ratio. This ratio makes up 30 percent of your credit score. And depending on how you use some balance transfer deals they can have a negative affect on your credit score. So if you take out a balance transfer credit card for a home project or for extra money and intend to pay the debt of gradually, then your debt-to-credit will jump up. But your credit limit will also increase. If you are getting a loan, and intend to use more than 30 percent of the spending limit then the loan will negatively impact your credit score until you completely pay off the loan.

But if you are dedicated to paying off your bills on time, then a balance transfer can actually decrease your score by decreasing the amount of debt owed. This is only if you pay your bills on time, and make sure the debt on your zero balance transfer credit card is paid off before the introductory offer fades.

Paying off the balance left on the balance transfer, and not closing the card can also impact your FICO score. If you pay off the balance and you leave the card open, it can help your debt-to-credit ratio if the balances on your other credit cards are also in check. Refrain from charging extra expenses after you have paid off the balance you transferred, and it can really help your credit score. Don’t just move money with a balance transfer deal; make sure you commit to paying off your debt, as well as watching your FICO score.

In order for a zero balance transfer credit card to be advantageous to the consumer, the consumer must first accept the responsibility and then research the facts. Start by figuring out how high the interest rate on the credit card will jump after the zero percent introductory rate offer fades. Most credit card issuers give good credit consumers access to their zero percent balance transfer credit cards, average and bad credit consumers are subject to 2.99 percent interest introductory credit card offers. Generally, promotional rates last in between six months and two years, depending on the credit card. The most common credit cards have a standard 12 months where the introductory interest rate is valid. After that time period expires, interest rates can jump to 10.99% or 20.99%, as it varies from credit card to credit card. The lower the interest rate after the introductory offer, the better, although, with a balance transfer credit card, commitment to on time bill payment is key.

Also, when browsing the balance transfer credit card market, check and see whether or not the card charges a balance transfer fee. This fee is a fee applied when the balances of the different credit card debts are combined. Balance transfer fees can range from three percent to five percent of the balance being transferred. This fee is due upfront. For example, a $20,000 debt balance would have a transfer fee of $1,000, if the balance transfer rate were five percent. If a credit card doesn’t charge a balance transfer fee, the card may charge an annual fee. Factor this into accounting to see if the card is worth it.

A balance transfer credit card is best for the consumer who is dedicated to paying off their debt in the quickest way possible. This consumer should already have financial discipline and be able to pay their bills off on time, as late payments can be detrimental to debt elimination on a balance transfer credit card. Some balance transfer credit cards will remove the promotional interest rate that was offered if a consumer is late on a payment. Also, if a consumer is late they will be subject to penalty fees.

While the offers are plenty, and offer attractive rates, balance transfer credit cards are not for every consumer. Calculate if it’s a fit for you by analyzing the current debt you hold and their credit card hosts. Tally up the interest rates on current credit cards and see if it’s less expensive to pay those balances off with the credit cards you already have. Calculate these numbers by using the same introductory offer time period on the balance transfer credit card, whether it is six months or two years. Add in any extra penalty fees that you can occur, and see which card works best for debt elimination.

Do Some Reading

Pay particular attention to the fine print. Yes, it’s boring, but the most important thing about transferring balances from card to card is to know exactly what you are getting yourself into. Many credit card issuers are rewriting their disclosure agreements to make them less convoluted and easier to understand, so doing your homework will be easier now than ever. If the card you are considering offers a teaser intro APR of no or low interest for a specific period of time, establish a repayment plan to eliminate the debt within the allotted timeframe. Learn what the APR will jump to once the teaser rate period expires, and whether or not there is an annual fee or any additional fees associated with that account.

Don’t Be Lazy

Be proactive when it comes to choosing a balance transfer card. Don’t just lie back and let the offers come to you – look around online to compare what’s out there. Figure out the features you want – 0% interest, no annual fee, airline miles, cash back rewards – and then look for the card that has the most appealing combination of your desired perks.

Do Be Discerning

While you may be bombarded with dozens of tempting credit card offers coming at you from all angles – in the mail, on TV, via the internet – don’t go crazy and start applying for cards willy-nilly. Too many credit inquiries will eventually put an impact on your credit score and will most likely drag your score down to the point where you may not qualify at all.

Don’t Ditch Your Old Accounts

After you shift a balance from one card onto another, you may have the urge to terminate the old account to tidy things up. You should, however, leave it open, even if it has a high APR – just set it aside and don’t use it. Closing accounts does not make them vanish from your credit report, and it is actually better for your credit score the higher the ratio you have of available credit to outstanding balances.

It’s especially important to leave that line of credit open if you have had that particular card for a long time. Credit scoring companies look at people with established credit patterns and paying accounts in a timely manner.

Advantages:

• Balance transfer scheme is hugely popular because of the zero percent interest rate that the bank offers. It is due to this that most people will be able to clear off their debts without paying the accumulating interest rates.
• Zero percent interest rate is usually extended up to fifteen months in some banks which is more than sufficient to clear off the debt with regular payments. The payment that is made to the account every month goes entirely to clear off the balance which goes on reducing every month.
• This helps people manage their debts easily and improve the credit score over time. Within a year, the credit scores will have improved considerably, which makes it easy for people in debt to manage financial crisis.
• Because the balance transfer cards cannot be used for any new purchases, it is easy to structure the spending habit, and control the situation from going out of hand again. It is easy to bring the credit card spending habit into discipline during the balance transfer scheme.
• It is the best alternative available, since the only other option to get rid of the debt by paying the fraction of the sum is to declare a bankruptcy, which remains in the credit history for seven full years.

Disadvantages:

• Although balance transfer schemes promise interest free rate for over a year, the credit card that comes with balance transfer has very high interest rates after the interest rate free period ends.
• If the balance transfer card is used while the outstanding balance from the old card is not yet cleared, is charged a very high interest rate. If the person uses the card by chance, then the whole balance transfer scheme does not make any sense. Until the old balance is cleared off, the newly spent amount keeps accumulating the interest rates.
• Balance transfer scheme helps improve the credit rating over time, but it causes the credit score to go further down, while signing up for the scheme. Closing the old credit card causes the score to drop further.
• Since the old balance from the old credit card is transferred to the new credit card, there may be some charges or fees associated with it. The interest free scheme applies to the total outstanding amount at the time of signing up for the scheme. This means, the interest rates accumulated up until that time is included in the total amount.

Annual fee and balance transfer fee

The fee to be levied on the balance transfer credit card plays a major role in deciding its effectiveness. It is important to ensure that you are not paying a lot of fees, which would end up negating the benefits of 0% interest rate during the introductory period. There are two types of substantial fees levied on balance transfer credit cards, the annual fee and the balance transfer fee. The annual fee which could be in excess of $100 could add to the outstanding debt of the cardholder. The balance transfer fee is usually around 3 – 4% of the balance transfer amount and also will add to the burden of the cardholder. Hence cardholders need to make sure they will save a substantial amount over and above what they pay as fees. Only in that case, the balance transfer will make valid financial sense.

What does the 0% introductory rate include?

Cardholders also need to check what the introductory rate of 0% includes. In some cards, the 0% is valid only for the balance transfer amount. However, in some other cards it also includes the purchases made on the card which means added benefits. Hence cardholders should distinguish between the two types of introductory offer when they accept it.

What is the final APR?

Some balance transfer credit cards offer excellent introductory terms. However, the APR after the introductory period could be as high as 20%. Hence cardholders need to ensure that they are aware of what the APR would be after the introductory period and also consider whether it would be comfortable enough to pay the interest over the outstanding balance.

Fine print

Balance transfer credit cards come with many offers but the fine print is also very important. For example, some credit cards cancel the 0% introductory offer as soon as the customer fails to make a payment on time. This could ruin every calculation that the cardholder would have made before accepting the offer. Similarly, some balance transfer credit cards come with opening bonuses and waiving off of issuance and transfer fee. However, this could be valid only if the customer reaches specific milestone expenses in the next 3 months. All these terms and conditions become very important when you are considering the value provided by a balance transfer and the amount of saving that you can make by transferring your balance.

Target the promotional period

Most decent balance transfer credit cards will offer you 0% promotional interest rate during the first few months. You must aim to pay back your debt before the end of this period, so that you are debt free and hence free of interests on the debt as well. For that, you need to calculate how much you have to repay every month. If your promotional period is 12 months and your debt is $1200, you need to pay back $100 to repay your debt completely in a year’s time, assuming that the promotional interest rate is 0%. However, during this period, if you have added expenses, which is very likely, then you might have to repay bigger amounts. Usually, it is seen that balance transfer credit cards have higher interest rates after the promotional period which should motivate you to get rid of the debt before the promotional period ends.

Do purchases have interests?

The terms on balance transfer credit cards could be very confusing. A good example is the variable interest rate scheme, where your initial debt might be free of interest during the promotional period, but your purchases might actually incur interest. Some credit cards don’t charge interests on the purchases either, which is the perfect scenario for credit card customers. Hence card holders need to be aware of the terms available on their credit cards to make sure they do what is financially most profitable. It is sensible to keep your expenses to a minimum during the promotional period, so that you can pay off your outstanding debt quickly enough.

Consider it as an interest free debt

A balance transfer credit card is providing you with an interest free debt for a fixed period of time. If your debt is $1000 and your promotional interest rate is 0%, it translates to a profit equivalent to the interest, if you were to make a similar deposit in a bank. You need to ensure that you don’t fritter away your advantage in such cases.

The promotional terms

The promotional interest rate and the promotional period, combined together usually determine the utility of the balance transfer credit card. How attractive the offer is, almost completely, depends on these two terms. For example, a balance transfer credit card with a promotional interest rate of 0% for a period of 12 months, is considered to be a decent bet as it allows you to get rid of interest on your debt for as long a period as 1 year. During this time, you can plan and repay your debt so that you are debt free by the time the new interest rate sets in. So, make sure the promotional terms are up to your liking and will actually benefit you financially. There is no point in going for a balance transfer where the promotional rate is not low or the promotional period is not longer than 6 months.

Longer promotional period versus promotional rate

Compare two cards, one with lower promotional rate, say 0% and a promotional period of 9 months and another with slightly higher promotional rate, say 4% and a promotional period of 18 months. 4% is still substantially lower than the normal interest rates on credit cards, hovering over 15% or sometimes even 20% and higher, depending upon your credit history. You need to choose a balance transfer credit card that offers you the best opportunity to repay your debt with the lowest cost. If your debt is low and its repayment can be managed with 9 months, then the first card, without any interest rate is a very obvious choice. On the other hand, if your debt is huge and cannot be repaid within 9 months, the second card is an obvious choice. This is because the 4% interest for 18 months, might eventually translate to less interest compared to 0% interest for 9 months, followed by, say, 15% interest for the next 9 months.

Additional costs should be as low as possible

Make sure you negotiate for an annual fees waiver as the fee adds to the debt burden on the customer. Sometimes this annual fee could be as high as $150, almost negating the benefits of 0% interest during the promotional period. Similarly, the balance transfer fees should be low. Other charges like late fees, cash advance fees and currency conversion fees vary from card to card and you need to keep an eye on them to ensure that the terms suit you well.