How to Manage Balance Transfers to Your Benefit


ADVERTISING DISCLOSURE: is an independent, advertising-supported web site. receives compensation from most credit card issuers whose offers appear on our site. Compensation from our advertising partners impacts how and where their products appear on our site, including, for example, the order in which they may appear within review lists. has not reviewed all available credit card offers in the marketplace.

Credit Card Applications » Research » Guides » Balance Transfer Cards » How to Manage Balance Transfers to Your Benefit

How to Manage Balance Transfers to Your Benefit

The content is accurate at the time of publication and is subject to change.
Imagine that you have a credit card where the annual percent rate is 20% and your outstanding balance is 500 hundred dollars. Supposing your credit limit is 1000 dollars, your balance is 50% of the limit. Now if you get a new offer from another credit card company which offers an interest rate of 10%, you might be tempted to pay off the debt on your old credit card, with the new card as you will have to pay less monthly interest now. This is called balance transfer. In other words, you are transferring your outstanding balance from one card to another card. Advantages of Balance Transfer The first and most obvious advantage of a balance transfer is obviously the lesser amount of interest that you will have to pay after the balance transfer. There are many credit card companies that have differential terms for a balance transfer scenario, where they offer higher interest rate after the initial term period but usually very less or 0% interest rate on the outstanding balance during the initial term period. If that term period is 18 months, for example, and you have an outstanding balance of 500 hundred dollars, you have 18 months to repay that amount without incurring any extra interest, which will help your cause. It is like an interest free loan for that time period. Balance transfer can also be a good way of clearing up all the accounts where you have debts and cannot even keep track of. By doing a balance transfer, you can bring your outstanding debt to one account hence making it more manageable. Problems with Balance Transfer Not everything is rosy about balance transfers. If you take up balance transfer with a credit card that charges a higher interest rate after the initial period and fail to clear the due before the initial period, you might end up paying greater interest for the outstanding balance. If you close your old credit card, after balance transfer, you might end up hurting your credit score badly, because your new card doesn't have any history whatsoever and balance transfer of a debt itself negates your credit to some extent. You should be careful to see what the percentage of your debt in your credit limit is, summing the credit limit of the old and new card. You must ensure that the percentage is lower as that means a better credit score. Closing the card with greater credit limit will increase the debt percentage thus decreasing your credit score. Hence we see that although balance transfer is one way of getting rid of your debts, it is not always the right way to improve bad credit. In fact, it can even worsen the credit history you have got. Hence, it is better to calculate your debt percentage, your monthly income and time to pay off your debts etc. instead of blindly going for a balance transfer and closing old accounts which is not advisable.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
Add to Favorites:
Get the latest news, articles and expert advice delivered to your inbox. It's FREE.

Related Research:

Top 5 Cards for Travel from Our Partners: Summer 2018 – Expert’s Choice

Top 5 Cards for Travel from Our Partners: Summer 2018 – Expert’s Choice

Posted: February 12, 2018

The sun shines more and more each day, flowers are in bloom and you already feel how hot it is getting - summer is here. Summer holidays are almost here, and you are in need of dire preparation. You can lift in spirits and let CreditLand ... Continue reading
Cash Back or Travel Rewards? Here’s How to Decide On The Right Card

Cash Back or Travel Rewards? Here’s How to Decide On The Right Card

Posted: February 10, 2018

If you're trying to find the perfect rewards credit card, you might feel like you're drowning in options. There are just so many out there, and many of them look similar. This can make it tough to decide on a card. One thing people often ... Continue reading
Price Protection: Credit Cards That Will Refund a Price Drop

Price Protection: Credit Cards That Will Refund a Price Drop

Posted: February 8, 2018

Those who often find themselves buying stuff and then discovering that they could pay less for the same item they've just bought, will appreciate this credit card benefit – price protection. This is the least known and the most neglected ... Continue reading
You've successfully subscribed!

Please specify the following:All these fields are optional

Your Credit History
Themes you are interested in:

By providing this information you help us make our news letters more useful and informative. Thank you!