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Research: When should you opt for a balance transfer and when not to? -

Balance transfer means to pay off the debt of one credit card with another credit card. It was originally for customers to pay off debts on their credit cards without really getting rid of their outstanding balance. A lot of credit card issuers now, are using it as a great way of attracting credit card customers from other companies to use their credit cards. This is accomplished by offering some incentives with the balance transfer.

When to go for balance transfer?

It depends a lot on your credit history, because, better the credit rating, better are the terms of the balance transfer that you get from your credit card companies. When you have a high outstanding balance, and are worried about the interests constantly accumulating, you need to look at these balance transfers. The rule of thumb is to ensure that you benefit from the balance transfer in the long term.

Balance transfer offers come with 0% introductory offer, which means that credit card customers can avoid paying high interests on their outstanding balance. This offer would be highly beneficial if the introductory period lasts long enough. Only then will your savings on interest be sizeable enough to justify a balance transfer. A lot of credit card companies base this on the credit rating of the individual, which is why one must be clear about the terms and conditions of the new card. The other criterion is to make sure the APR on the new credit card is not higher than the older one. In the long run, a lower APR will not threaten as much as a higher interest rate, especially, if you don`t pay all the outstanding balances before the end of the introductory period.

When not to go for balance transfer?

There are certain scenarios where a balance transfer is to be avoided strictly. One of those cases is when a high balance transfer fee is involved. In that case, the balance transfer will reduce the savings made through the 0% interest offered. If the balance transfer is higher than 3-4% on an outstanding balance which is on the higher side, you are better off avoiding the balance transfer.

Some credit card companies offer lower credit limit. If you are planning to move fully from one credit card to another to avoid overspending, the new credit limit should be higher than the older card`s credit limit. A lower credit limit will bring down your credit rating. Some card issuers, mandate the customers to pay back part of the credit card debt in the beginning. Most importantly the card should still be usable, with a lower APR, and a good rewards program, which are key for a good credit card offer.