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Weighing the pros and cons of balance transfers
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Weighing the pros and cons of balance transfers

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Due to the increasing rate of credit card debts, many schemes are introduced by the credit card companies in order to help the people clear their accounts. Balance transfer scheme is one such scheme that helps people clear off the debt without accumulating the ever growing interest amount on it. This scheme is definitely worth considering if the balance amounts have grown over a period of time, and cannot be cleared by the regular bill payments due to the interest rates charged. But like in all other schemes, balance transfer schemes have both advantages and disadvantages to it. All the same, trying out the scheme when no other option is available is worth it any day.

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.

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