The balance transfer credit cards provide two distinct advantages. Firstly, you are able to shift your debt from one or more cards to a credit card that is more usable and financially manageable. Secondly, a balance transfer will usually allow you a breathing period, during which time the interest rates on the debt are low or sometimes absent completely. Balance transfer credit cards come at their own cost. You have to pay the balance transfer fee which could be a substantial amount. There could be unknown penalties and hidden charges, which is always a risk associated with new cards that you aren’t yet used to. Most importantly your credit history will also suffer to some extent, especially if your track record shows a pattern of frequent balance transfers. In order to negate all these disadvantages, you will have to make your balance transfer credit card count in a smart way. Here are some tips to ensure you get the best out of it.
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.