For individuals who are in unpleasant situations due to rising credit card debts, the best option would be to do a balance transfer to a card with 0% APR. When balances are carried forward then the debts mount quickly and before one realizes they are in a debt trap and struggles to pay due to high interest.
How it works?
It works on a very basic principle where there are two accounts which is the delivering account (which has the current balance) and there is the receiving account (where the balance is transferred).
The balance transfer is quite a simple and the transfers could happen electronically, via check/ paper or through internet banking networks. The institution which handles the issue will basically transfer the amount (balance) to the delivering account from the receiving account. Now that the old balance has been cleared with the delivering account the institution that handles the receiving account will have to be paid the equivalent sum and the debit is thus shifted to the receiving account. This makes the balance transfer complete.
Cards that come with no fee for a year and cards that come with 0% balance transfer offers can result in substantial savings. But at times, the balance transfer fee itself could be somewhere around 3% to 5%. This could take away the benefits of the savings. In order to have maximum benefits it is advisable to pay as much as possible on the balances and carry forward only a minimum balance. The balance should be cleared as much as possible during the low rate introductory period.
The credit scores of the individual have to be in good standings in order for a balance transfer to take place. One needs to qualify in order to do the balance transfer. The credit scores should be in the good to excellent range. Ideally, one should look for a low rate credit card with no balance transfer fees. There were 35 cards that were surveyed and it was found that at least 25 did not have any balance transfer fees.
A percentage of the credit rating depends on the credit utilization ratio and the credit rating could come down if balance transfers are done often. While balance transfers may sound like a good idea to deal with difficult financial situations, one has to consider the pros and cons as well.