The Pros and Cons of Balance Transfers: Is it Right for You?
Balance transfer from a credit card with a high-interest rate to a credit card with a low-interest rate is an excellent way to save money and free yourself from debt quickly. It can also lead to more debt and make the financial situation worse. Balance transfer is a great tool to eradicate debt if used appropriately. But, good credit scores are necessary to access the balance transfer facility because the new lender will also check your credit score. Hence, use the official websites or the CIBIL score app and get a free CIBIL score check.
A balance transfer is an excellent opportunity to enjoy some time without paying interest on your credit card. You can shift your balance from your existing credit card, where you may be paying high finance fees every month, to a new credit card, where you will pay no finance fees for six months or more. A free CIBIL score check is advisable to get your application accepted. Are balance transfers right for you? Let’s explore the pros and cons of balance transfers to help you decide whether to opt for them.
Advantages of Balance Transfers
Some merits of balance transfers are as follows:
Consolidate Your Payments
You can transfer the balance to a new balance transfer card and merge numerous credit card balances. When you consolidate the debt of your credit card into one, you can concentrate on one payment within the deadline rather than making several monthly payments and keeping track of numerous due dates. You can effortlessly manage your payments by consolidating them.
Save on Interest
A primary advantage of balancing your transfer is to save money on interest. Seeing credit cards with annual percentage rates of 28% or above is common. A few balance transfer credit cards have an introductory 0% annual percentage rate for a fixed tenure. The interest eats up the money you put forward in this way rather than paying down the principal balance. With an interest rate of 20% on average credit cards, a balance transfer facility can help you to save money. It will be easier to pay off the debt, and you will see positive results after performing a free CIBIL score check on a CIBIL score app or website.
Boost Your Credit Score
Balance transfers can lower your credit utilisation ratio or CUR and boost your credit score. Since you will not pay interest, your balance will drop when you make your monthly payments. A low balance to your credit limit will lower your utilisation rate, thereby boosting your credit score. 30% of your credit score is your utilisation which is considerable.
Move the Balance to a New Credit Card with Better Terms and Conditions
Suppose your existing credit card has unreasonable terms and conditions, high charges, and a short grace period. In that case, you can move your balance to a credit card with good terms and conditions than the previous one. Your new credit card may offer you rewards on your purchases.
Disadvantages of Balance Transfers
Some demerits of balance transfers are as follows:
Balance Transfer Charges
Several credit cards will charge fees for balance transfers to their cards. The fee is represented as a percentage of the transferred amount. The fee on balance transfers can vary from 0% to 5% or above.
Credit Inquiries
Even though a balance transfer credit card can boost your credit score in the long run, it can adversely affect your credit score in the short term. It is because your credit score is considered while opting for a balance credit card. Whenever lenders check your score, it is a hard inquiry, which can affect your score. If you apply for multiple credit lines, the impact will be more. Even if you shop for a new loan, a drop in some points can lead to high rates.
More Debt Risk
More credit is available after you transfer your balance from your existing credit card to a new one. It can be enticing to spend more and add to your debt.
High-Interest Rates
Many balance transfer credit cards are good for a limited tenure. If you miss repaying the overall balance on the due date and before the promotional term ends, you might incur interest on the leftover balance at a high APR. It is easy to fall into the trap if you pay the minimum amount, thinking you have sufficient time to pay the rest after the promotional tenure ends.
Conclusion
Balance transfers make sense if you pay the majority of your outstanding amount before the promotional tenure on your new credit card ends. After the promotional tenure, the new Annual Percentage Rate doesn’t outweigh the progress, and all balance transfer charges fit within your debt repayment plan. Balance transfers from one credit card to a new one require mathematical calculations and a free CIBIL score check before moving. While transferring the balance, your new lender will also consider your credit score before accepting your application. Hence, download the CIBIL Score App and check your credit score before moving. After reading the article and carefully reviewing the merits and demerits, you can decide whether a balance transfer is right for you.
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