There was a time when not being able to pay off debts on a credit card would result in your entire financial future being jeopardized. Using the balance transfer option wisely would ensure that this would not be the case.
The balance transfer option is a way to transfer your outstanding balances on a credit card onto a new card. This way you would have more time to pay off your debts. It is also a very useful option if you own a high interest rate credit card and wish to reduce the interest premium that you are paying by transferring to a low interest credit account. There are also other uses to the balance transfer option; you can pay off emergency expenses with your old credit card by transferring the outstanding balance to a new credit card. This way, you can always be ready for any emergency expenditure that might come up all of a sudden.
But before utilizing the balance transfer option for any of these cases, it is important to understand the consequences of doing so. Firstly, you need to study your new credit account in detail before going ahead. If the new credit card account has administration fees, account opening fees or other hidden charges, you will end up paying more than you expected. Also ensure that the new credit account has a lower interest rate or even better an interest free period during which you need to not have to worry about the outstanding balance.
Also be aware of how a balance transfer can affect your credit score. Frequent balance transfers can adversely affect your credit scores. But the first time you do it, it will actually increase your credit score marginally. This is because when you open a new credit account, your debt to credit ratio will go down. The lower your debt to credit ratio the better. Hence it is important that you do not close the old credit account, because this will actually adversely impact your credit score. Closing a long standing account is a very bad move and can affect your credit score.
When you get a new card, you might be enticed into using it in order to make purchases so that you may claim the reward points. But do be aware that doing this can put you in greater debt. Start making new purchases only after you have cleared out your balance. Using your credit card to accumulate reward points is a very good way of using your card to the maximum potential, but do be aware that you need to pay it all back at some point of time. As long as you can manage the repayment, you should not be in a position to make a balance transfer in the first place. Always keep the balance transfer option as a last resort. Do not keep that as a ready stand by for any and every purchase that you need to make. If you do this, you will end up having a number of credit cards with outstanding balances and no finances to pay for them all.