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Should I Make A Balance Transfer? Image

Should I Make A Balance Transfer?

Transferring some of your credit card debt to one that offers an introductory interest-free period can help you move toward a debt-free life. However, there are some things you’ll want to be aware of first.

To help you make the right decision, read on for a list of the pros and cons of balance transfers.

Pros

1. Pay Less Interest

Obviously, your biggest push for making a balance transfer is to not accrue as much interest on the debts you’re transferring. With the Federal Reserve’s recent interest hikes, this may seem like an especially good time to move toward a lower interest option.

If you’re stuck with a high-APR credit card, you can easily be paying upward of $80 a month, just in interest! Making a balance transfer will allow you to take a real bite out of your debt and make progress toward getting rid of it completely. You’ll be saving money and working toward an important goal at the same time.

2. Convenience

The more monthly bills you need to pay, the greater the chance of missing a payment. A balance transfer may allow you to consolidate the balances of several different cards into one. This way, the number of monthly payments will go down, and it will be that much easier to keep on top of payments.

3. Motivation

Too often, people get trapped in a cycle of debt. When they feel like they’re in over their heads, they continue swiping and spending as they please, figuring that another few hundred dollars won’t make a difference to the huge mountain of debt.

Many people find that taking this significant step toward paying down debt motivates them to be more careful with spending habits. After all, you aren’t trying to get rid of your debt just so you can rack up another bill.

Cons

1. High interest fees

Yes, you read that right. The appeal of an interest-free credit card is what draws you into making a balance transfer in the first place. However, at the end of a predetermined amount of time – anywhere between 6 and 21 months – your new interest rate may be unusually high. While you may plan on paying down your balance before the new rate kicks in, circumstances may dictate otherwise and you’ll find that you’re unable to even meet the minimum payments. Similarly, if you’re only doing a transfer for a year-long reprieve from interest, you’re essentially treading water without making any progress on your debt.

Also, many balance transfer cards do not offer the same interest-free deal for any new purchases you make on the card after the transfer. If you plan on using this card for day-to-day purchases, you may be biting off more than you can chew.

2. Transfer fees

Some balance transfer offers charge a minimum of 3-5% of the balance you’re transferring in exchange for assuming that balance. While this fee may be nominal in the face of the interest you can save, it’s important to note that some balance transfers do not charge any transfer fees.

3. You need excellent credit

One of the biggest problems with balance transfer cards is that those who need them most may not qualify. This is understandable, of course – the new credit company doesn’t want to wind up paying for delinquent credit card bills. But if you’re considering a transfer, bear in mind that you may need to have a good-to-excellent credit score, one of at least 700 to get approved for a new card.

4. Increased monthly bills

Too often, a company offering to accept interest-free balance transfers will only accept a portion of your balance. Or, your original credit card company may not allow your entire balance to be transferred because they don’t want to lose out on all that interest. This means you’ll be adding one more monthly bill to deal with. This can complicate your money management and up your chances of missing a payment – something you always want to avoid.

If your entire balance is not transferable, consider looking at a consolidation loan to maximize your savings and help keep one lower payment. Missing a monthly payment can really hurt your credit score.

5. Negative impact on your credit score

Until the recent changes to the VantageScore system, having lots of available credit was considered a good sign. Now, though, having less credit while still using a small percentage of your available credit is considered the smarter choice. Opening a new card without closing an old one means you will have more credit available and may actually lower your score. Also, having lots of open cards will make lenders view you as a risk, making it more difficult to qualify for auto loans and the like.

If you find yourself sinking in credit card debt but don’t think a balance transfer is the right choice, we can help! A personal loan may be just what you need to get you on the right track toward debt freedom.

Call, click, or stop by HomeTown Credit union today to find out about our competitive rates and options on personal loans and balance transfer options!