A credit card can be a useful resource for when you need some cash, and when they are managed properly, they can be great for your credit score. However, it is not uncommon for people to overspend on their credit cards and by doing so, they wind up in financial trouble. With the interest mounting and an inability to make a significant dent in the debt, it can be really difficult for a person to get caught up. For people that have built up credit card bills that are unmanageable, there are some options.
Credit Card Balance Transfers
A good solution to this problem is to use a credit card balance transfer to defer the interest and payments to a later date. In a basic sense, the consumer transfers the balance from one credit card to a card held by another company. Obviously, this strategy only works if you transfer the debt to a card that has a lower interest rate than the one that it is currently on.
A popular way to employ a balance transfer is to sign-up for a new card that has a low teaser rate and deferred payments. This is a practice that is actually promoted by several credit card companies because it gives them an opportunity to win new customers.
The Advantages of a Balance Transfer
The advantages that come with a balance transfer are clear. It saves the consumer on interest, and it buys them time to pay back the debt. Many of the cards that promote the idea of a balance transfer will come with a low introductory teaser rate and most are even interest free during the promotional period. By law, the introductory rate has to last for at least six months, but cards will often extend this to a year or beyond.
Essentially, the new credit card company accepts your old debt, and they allow you a long introductory period where there is little to no interest and no requirement to make payment until the period has expired. Now, this sounds like a great scenario where you can’t lose, but there are some issues to be aware of before you decide to make a credit card balance transfer.
The Disadvantages of a Balance Transfer
Firstly, you need to consider the terms of the new card beyond the introductory rate. The 0% interest will not last forever, and many of these cards will have high interest once the teaser rate expires. Additionally, most credit card companies charge a transfer fee for the balance from the old card. On average, this fee is usually about 3%, but charging as high as 5% would not be unusual. In addition to the transfer fee and the possible costs that could occur once the introductory term expires, the added credit could have a negative impact on your credit score.
Balance Transfer Offers
Credit card companies see the balance transfer as a good opportunity to get some new cardholders, and there are various offers that are currently available. If you are considering a balance transfer to help you manage your debt, you will want to compare a few cards to see which one will be the most advantageous.
The Discover it is just one of the many cards offering balance transfers for new cardholders. They offer 0% interest for 12-18 months on the transfer and 6 months of 0% APR on all new purchases made on the card. The balance transfer fee is 3%, and there is no annual maintenance fee on the card, so it could be a good option for consumers that are looking to take advantage of a balance transfer.
The Chase Slate is a particularly advantageous card for people that need a balance transfer. It offers 15 months interest free on the balance transfer and on purchases made on the card. In addition to this, the balance transfer can be done for free if the cardholder uses it within the first 60 days. Even after the first 60 days, the balance transfer is still a low 3%, so it isn’t even that bad if you have a card that you need to use the balance transfer on after that.
If you are looking to stall the interest for as long as possible, then this is one of the best cards to get. It has an introductory interest free period of 21 months, and that covers the balance transfer and new purchases. The balance transfer fee is 3%, and the card has no annual fee, but there is no rewards program with this credit card.
If you decide to go with a credit card balance transfer, don’t think of it as debt that you can just forget about during the introductory period. If you do that, you are very likely to find yourself in worse shape than you were before the transfer. Use this interest free period as an opportunity to get the debt paid off. If you manage the situation properly, it could be a great way to get your credit card debt under control.