A zero percent balance offer sounds like a great opportunity to enjoy a few months without a credit card interest. You can move your credit from your current credit card, where you could pay high financing costs every month to a credit card, where you wouldn’t pay financing costs for six months or more. Before you jump the opportunity, you should consider the advantages and disadvantages of a balance transfer. It cannot be cut and dry as you think.
Benefits of a balance transfer
Let us look at a few of the advantages of taking a balance offer.
You can take advantage of a lower credit card interest rate, which is especially beneficial if you are currently considering moving a high interest rate on the credit card balance. Transferring a balance to a low interest rate credit card will give you a chance to make a bigger dent in your credit card balance. Since you will have no lower financial costs and possibly more of your monthly payment, your credit card balance will decrease instead of going on interest. You may even be able to completely pay off the balance by the time the promotional period ends.
You can transfer your credit to a credit card with better conditions. If your current credit card has bad conditions – high fees or a short grace period, for example – you can move your credit towards a better credit card and lock out your old credit card account for good. The new credit card can even offer credit card rewards on new purchases.
You can pay off your credit card debt so that you can consolidate yourself with fewer credit card payments each month. Moving multiple credit card balances to a single credit card (since it has a sufficiently high credit limit) to eliminate the hassle can make multiple credit card payments to multiple different credit cards. It is easier to pay off one credit card balance than it is to pay off several.
Disadvantage of a balance transfer
Of course, we also need to consider the potential disadvantage of transferring a balance to a new credit card, even with a balance offer.
You could end up with a higher interest rate if you don’t qualify for an advertising interest rate. Not everyone qualifies for the promotional interest rate. You usually need to have an excellent credit score to get a low interest balance offer. Otherwise, you will only qualify for the regular (higher) Balance Transfer interest rate.
Balance transfer can be expensive considering the balance transfer fee and the annual fee if the new credit card has one. Before you transfer the scales, make sure that you move into full cost equilibrium and compare the interest you would pay if you left your credit card on your old loan. Leaving your credit on the old credit card can cost less in the long run.
A balance transfer could hurt your credit score. Applying and opening a new credit card account can help you improve your credit score. Not only does your credit score take a hit whenever you use a credit card with a scale that is over 30% of the credit limit. If you move your credit card balance to a credit card that doesn’t have enough credit available, your credit score could drop. The good news is that with timely credit card payments, you can recover your scales by reducing points lost every month.
You are at risk of more debt. As soon as you transfer your credit to a new credit card, you suddenly have more credit available. You have to be disciplined enough not to make purchases on your old credit card. Otherwise, you will end up with more debt than you started with. Close your old credit card if you need to remove the temptation to rack up more credit card debt.
The final decision
While there are some downsides to transferring your funds to a new credit card, consider how the balance transfer will affect your finances in the long run. If you ultimately save money and your credit card balance is paid out quickly, then the balance transfer is worth it.