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Balance transfers, if used correctly provide us the much needed respite during the economic downturn. Balance transfers are schemes that transfer the outstanding balance of one card to another new card or the old existing one. The highlight of this transfer is the zero interest charged on this outstanding balance. That is the reason this scheme works very well in clearing off the debts remaining on a credit card without having to pay the interest for the accumulated amount. There are a number of credit card companies in the business that offer a number of schemes that claim to help you clear off the debts. There are three major factors to consider in this scheme:
1. The fee they charge for the balance transfer
2. The interest rate for all purchases henceforth and
3. The time duration for which the zero interest rate applies
There are numerous cards to choose from. Consider the following steps when you are ready to start on balance transfer scheme to clear your debts.
Research all the available options:
Talk to different banks and different credit card unions about their best offer. Use the internet and find out what other options you have before choosing the card. Interest rates and time duration that zero percent interest applies vary from card to card. Do not choose the first card or offer you come across. Often you can negotiate with banks or credit card unions if you are one of their loyal customers. Find out if that option is available in your bank.
Consider not only the conditions but benefits:
Some cards have other attractive offer like reward schemes, extended low interest rates for up to 12 months on other purchases, cash backs on purchases at specific vendors and so on, along with balance transfer. Find out what best you can get out of the deal. Sometimes, using the card after you have cleared outstanding balance can get you some great benefits. Rewards play an important role too, since it does not hurt to save up some money while you shop.
Balance transfer and your credit scores:
Balance transfers can affect your credit report in three ways: It can hurt your credit age, it can affect your debt level and it can reduce credit score in terms of new credit application. Credit age is nothing but how long you have been carrying a particular credit account. When you decide to change account in balance transfer, it doesn't affect you if it is an existing account. But, if you decide to create a new account, your credit score will be lower for two reasons; your credit age and application for new credit. Also, because your outstanding balance will be high because of balance transfer, the amount of credit will be greater than credit limit until you clear off your balances. This is another reason that creates negative points on credit report. Before cancelling your balance transfer card after use, think twice because cancelling old accounts hurt your credit score too.
Though balance transfer has some tradeoffs, the benefits are too good to ignore. Zero percent interest rates means faster clearance of debts and quicker way to worry free finances. Consider all the above mentioned factors and choose the card that is worth a shot.
