Pros and Cons of Balance Transfers: Weigh Them Carefully

Editorial Note:

Updated: November 29, 2022

Does saving money while in debt seem fantastic? For the majority of people, it is. Others, who invest their time in researching credit card balance transfers, may benefit from the deal. Banks and credit card issuers use the balance transfer trick to attract new clients. There are certain pros and cons of balance transfers.

They offer you to transfer your debt to a new credit card and enjoy certain benefits. In return, the card issuers sometimes get a client, who doesn’t pay the balance on time, bringing the company monthly profits.

Let’s take a look at the most important pros and cons of balance transfers to help make the right decision for you and win the Balance Transfer Game.

0% Balance Transfer Explanation

Benefits of Transferring Credit Card Balances

Transferring your credit balance to another card has several substantial benefits. Each one of them is worth some attention and research.

1. Low Interest Rate

In order to lure you into the deal, banks need to offer incentives. One of them is either low or zero percent interest rate. Even though such an offer is usually temporary, it’s a great way to save money. However, be sure to pay off your balance in full before the promotional period ends.

You can always use the balance transfer credit card deal again as soon as the interest rate increases to customary rates. However, be careful not to hurt your credit rating.

2. Better Terms

Does your current credit card issuer have unfavorable terms, such as a short grace period or high fees? Leaving your old bank to enjoy the benefits of its competitor is a smart move.

It’s vital to study the terms of the card issuer you are about to transfer your balance to. There may be hidden fees, which would make your transfer useless and non-beneficial.

3. Savings and Rewards

Each credit card issuer offers its clients certain “perks.” Transferring the credit card balance can be an opportunity to enjoy new benefits. For example, some cards offer price protection. This option allows you to obtain a refund for the price difference of an item that went on sale a short time after you purchased it.

Other useful perks are free rental car insurance and lost luggage protection. Depending on your lifestyle, you can choose the options that are most suitable for you.

4. Debt Consolidation

If you are struggling to pay off several credit card balances each month, the pressure can be frustrating. Moving them all to one credit card issuer with better terms can save you time and money. It’s psychologically much easier to deal with one debt instead of several.

5. Peace of Mind

When you are struggling to stay afloat in the sea of debt, your nervous system is under a stressful attack. Transferring the debt to a card issuer with a lower interest rate can help you breathe easier. Even if the benefit is temporary, it can substantially improve the quality of your life.

Drawbacks of Transfering Balances

Even though the benefits seem to be numerous, the drawbacks are substantial as well. Weighing both lists is vital for avoiding mistakes.

1. Higher Interest Rates

The low rate offered in the beginning is only temporary. Eventually, you could end up with higher payments. This often comes as a surprise to those people, who don’t read the “fine print.”

2. “Hidden” Dangers

Don’t become an easy ‘target’; always read the fine print. There are many little rules, which you may overlook in your race to save money. For example, some companies may boost your lowered rate if you miss only one payment.

3. Balance Transfer Fee

The majority of banks and card issuers charge a certain commission for the balance transfer. The average fee is about 3 percent of the amount you are transferring.

4. Not Everyone Qualifies

If you want to qualify for a balance transfer, you need to have a good credit score. Check your score before investing your time into researching the potential credit card issuer.

Weigh the Pros and Cons of Balance Transfers Carefully

A credit card balance transfer is a good choice if you carefully weigh the pros and cons of balance transfers. Extensive research into the terms of the deal is vital to taking advantage of the benefits and avoiding drawbacks. Use our free balance transfer calculator to determine if a balance transfer will actually save you money.

Roman Zelvenschi

I started a digital marketing agency Romanz Media Group Inc. 12 years ago. Running my own business quickly taught me the importance of cash flow. Making sales was not enough, I had to have money in the bank to pay the vendors, staff and personal bills.

During those early stages of the company I learned how to get creative with debt and to save on interest cost. I paid for everything I could with a credit card to both get more points and to extend the payment date by 25 days (credit card grace period). I then utilized a 0% balance transfer offers to rotate this debt.

I learned a lot during this process and made a lot of mistakes. My key lesson is that the most important part of being financially independent is how much I managed to save, rather than how much I earned. Staying disciplined with savings and tracking spending is not easy and I tried many different methods to stay on track.

FinancialFreedom.Guru is a side project where I and my staff are trying to share the practical knowledge on how to understand finances and to build wealth.

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