Balance transfer credit cards are offered by companies to attract customers of other cards. Almost every balance transfer card comes with several incentives including milestone bonuses and 0% interest rate introductory offers. However, one needs to be careful while going for balance transfer from one credit card to another credit card. Here are some things that you must consider with balance transfer transactions.
Balance transfer cards often come with several costs. One must have to get their calculations correct. Otherwise a balance transfer credit card might prove to be an expensive mistake. Before going for balance transfers it is also ideal to look for the possible costs through which one could lose the advantage offered by 0% introductory rate during the promotional period. These costs include balance transfer fee, annual fee, high interest rates after the introductory period and also excessive penalties including late fee and overdraft fee. All these costs could negate the benefits of a balance transfer transaction. So, one must take a calculated risk and ensure that it doesn’t backfire.
If you close the older credit card, you will adversely affect your credit rating. Also it will cause a dip in the available credit limit, which increases the credit utilisation ratio, especially when the new credit card offers a lower credit limit. Therefore it is advisable to keep the older credit account open.
It is a standard practice that balance transfer credit cards offer lower or 0% introductory rate in the beginning but the APR climbs steeply once the introductory period is over. Therefore one must ensure that they pay off the outstanding debt as soon as possible. A good way to do so is to keep apart a minimum amount to pay back every month, such that the balance is paid off completely before the end of the introductory period. If it isn’t repaid before the introductory period is over, one has to pay higher interests which will once again bring an added burden.
A lot of balance transfer credit cards have offered milestone bonuses during holiday season. For example, there are cards which have given $100 discount if the customer spends in excess of $600 or so, in the first 3 months. Customers should be careful of such strategies and not go for a spending spree to avail the discount.