If you are indulging in too many balance transfers, you will be looked upon as someone who is not as creditworthy as one should be. Your credit history is of particular interest to banks lending you loans, credit card issuers, insurance companies and even landlords and prospective employers these days. The credit history, score and payment patterns offer an insight into your principles and habits. At the same time, you need to cash in when a good opportunity presents itself. This is why you have to time your balance transfer to perfection, whenever you get the ideal chance. Here are some tips to consider before going for a balance transfer.
Are you gaining a substantial amount?
A lot of card holders go for balance transfers to another credit card for 2 reasons. The balance transfer cards usually offer 0% introductory rate. By virtue of this, card holders with more than $1000 of debt, can save a significant amount of money. This is in the form of interests that they needn’t pay anymore during the introductory period. Balance transfer offers also give away opening bonuses and other rewards especially during the holiday season, for milestone expenses. So, you need to ponder over whether you would be saving a significant amount of money, around $200 at least, if you go for the balance transfer. If you are not sure, then the balance transfer transaction isn’t worth the trouble.
Has your existing card company hiked the interest rates?
As per the new credit card rules
, credit card companies have to give you advance notice if they have plans to hike the interest rate. Card holders needn’t accept these terms, in which case, they can pay out the debt and close their card account. This is when you can consider going for a balance transfer. However, it is important to pick the right credit card, even when you have the time constraint to make a quick choice.
What is the cost?
Balance transfers come with attractive incentives. This could include opening bonuses, introductory 0% offers and many more rewards. However, what is important to consider is the cost at which you are getting those rewards. Cost, in case of balance transfer credit cards, comes through a few parameters. Balance transfer fee is one of the parameters and it is usually between 3 – 5% of the transfer amount. Sometimes, card holders are expected to make an upfront payment of a portion of the balance on the previous credit card.
The other factors
There are some minor factors which need to be considered before going for a balance transfer as well. One of the factors is the credit limit. Your credit score depends on your credit utilisation ratio. This means for the same debt, a lower credit limit could reduce your credit score. You would want to avoid that at any cost. Another factor to consider would be the interest rate after the introductory period. If it is higher than the existing credit card rates, it could become a tricky decision.