What is a Credit Balance Transfer?

When people get into more debt than they can really handle, high interest rates start to really be an economic problem. Credit cards are highly convenient tools that allows you to buy things when you need them but everything comes at a cost.

Many credit cards have high interest rates that apply to debt you leave owed on a card from month to month. If the debt owed gets high, then the interest is going to be high as well. One strategy that some people try to handle temporarily relieve the burden of their debts is to use balance transfers.

Simply put, a balance transfer is where you bring the debt you owe over from one account or bank into another account, usually at another bank or financial institution. The typical benefit of doing this, is to have the debt running on a lower interest rate account.

However, as with most things, there is a trade-off for doing so.

Positive Aspects of a Balance Transfer

  • Doing a balance transfer often allows you to take advantage of promotional periods where lines of credit can run as low as 0% APR. Under these circumstances, you can save a massive amount in interest while you get your debts paid off

Negative Aspects of a Balance Transfer

        • Your credit score is likely to go down. When credit rating institutions see that you’ve opened new lines of credit recently, they tend to pin that negatively against your score. However, the impact usually isn’t as drastic as missing a credit card payment.
        • If you accept a new promotional offer, your debt might be at the mercy of that new account. Once the promotional period end, you may be subject to high interest rates once again after the period enters and be restricted with how you can handle the debt for a certain period of time.
        • Balance transfers usually have a one time fee at the very least. This may be 3 or 4% of the money being transferred, but it may be much better than paying 20% APR over the course of the next year.
        • Not everyone qualifies for a balance transfer. Your credit score needs to be at a decent level, usually 680 or higher, in order to make the transfer. If you are struggling with credit, then you may need to look for another solution to your problems.

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