The Perils of Balance Transfers

When you can no longer handle your credit card debt, sometimes the best way out is through a balance transfer. Balance transfer can buy you more time to pay your debt. It can also help avoid bad credit. To fully utilize a balance transfer, look for credit cards that offer zero percent interest rate. Find one that can, if not fully, at least significantly accommodate a huge chunk of your debt. Expect that not all of your balance may be accepted for balance transfer.

However, no matter how the pros outweigh the cons, you still need to watch out for balance transfer pitfalls. Falling in to these perilous traps can worsen your situation, pushing you down faster into uncontrollable debt.

Promotional Period

Don’t be too happy just yet if you find a zero percent interest rate on balance transfer. Know that there’s always a catch and in this case it’s about time limit. Commonly, the low interest rate only lasts for a few weeks. After which, whatever balance you still have left will be charged with the regular interest rate. The worse part is that this regular rate can be higher than your previous rate in your old credit card. To avoid this pitfall, make sure to take advantage of the zero interest rate before it expires. Make sure you’ve paid your balance off before you run out of time.

Transfer Fee

When you transfer an amount, it usually comes with a transfer fee. This amount can be as high as 5 percent of the balance you transfer. The bigger the amount means the bigger your transfer fee. When you choose a balance transfer card, make sure that your savings on the interest rate outweighs the transfer fee you have to pay. If not, you could end up paying more in your balance transfer than you would have have you stayed in your old card.

Credit Limit

Your balance transfer card has a credit limit. When you transfer, it will only allow the amount that won’t exceed this. So if you only managed to transfer a portion of your debt, you’ll still have to pay the remaining amount based on your old interest rate. If you opt to transfer the remaining debt in to other balance transfer cards, it may taint your credit history. This is because each balance transfer requires a hard inquiry on your credit report. Each hard inquiry can result to a low score in your credit rating.