5 things to consider before a balance transfer
By: James Belle
Balance Transfer is an opportunity to pay off your credit card debt on a reduced interest rate or without paying any interest, for a given period of time. It is the most common perk credit card companies use to entice new customers.
It is a good perk too and many people take advantage of it to reduce their credit card balance or pay it all off. You may have seen your fare share of 0% balance transfer offers but as with most things, there are complexities and traps usually buried with in the details of the contract.
To make sure you get the most out a balance transfer, here are a few things you should consider:
1. How long does the rate last?
A 0% rate might look more attractive than a 5% one but if you consider the length of the offer, in some instances the 5% offer works out better; for example, if the 0% offer last 6 months and the 5% offer lasts for the life of the balance, the 5% offer is better unless you plan to pay off the balance within 6 months.
2. After the balance transfer fee, is it worth it?
It is common for balance transfers to incur a fee, normally 2 or 3% of the amount you wish to transfer. To work out whether it’s worth transferring; First calculate how much interest you would have paid on your current credit card over the balance transfer offer period, then compare it to the balance transfer fee. If the balance transfer fee is higher, then it isn’t worth transferring.
3. What are the conditions of deal?
Most balance transfer deals have conditions that would cause the credit card company to withdraw the offer, the most common one being; missing a payment or making a late payment on your credit card. Make sure you study all of them, and evaluate whether you can meet all of them.
4. What’s the interest rate for new purchases?
On some credit cards, although your transferred balance might not incur any interest charges, they would charge you interest on any new purchases you make with the credit card. If you don’t intend to use the credit card on a regular basis this issue will not matter.
5. What will the rate be when it changes?
After the balance transfer period is over, you can expect to pay some interest, but how much? If it’s too big a jump, plan on making another balance transfer just before that one comes to its end, or stretch your finances and pay it off within the offer period.
James Belle writes about personal finance, he has written tips on getting a credit card bad credit amongst many others.
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