The most common way a credit card is used is through the card itself. Each time it gets swiped, the available credit is reduced and a person is expected to pay a monthly payment based on the amount of credit used. However, credit cards can also be used to receive cash or a balance transfer. What is a balance transfer? A balance transfer is when a certain amount of credit is transferred from one credit card account onto a new credit card account or an existing but different credit card account. Balance transfers are marketed by credit card companies as convenient, easy and beneficial. Easy and convenient that may be, but be careful regarding the perceived benefits before executing a balance transfer.
Firstly, a person will need to investigate any fees associated with the balance transfer. These fees tend to be one-time, but are added onto a person’s credit card account, which can be annoying. These are fees that are put in place just for balance transfers. These fees will accrue interest just like anything else purchased with a credit card. For this reason, credit card holders need to make sure the transfer fee is paid once it shows up on the credit card account. And since this fee normally ranges $50 to $75, it shouldn’t be much of a sacrifice trying to make this credit card payment and pay it off. Watch and review if the transferred amount is not a significant sum of money and the transfer fee that fist appears rather inconsequential is now a measurable charge relative to the amount of money involved.
Secondly, a person needs to consider the credit card interest rate associated with the balance transfer. Many credit card companies offer introductory credit card APRs of zero percent to encourage people to transfer balances. However, the key word is introductory. After a period that ranges from six months to up to 2 years, customers are charged at a more normal or sometimes elevated APR over that of standard credit cards. So, the main key is making sure one can pay their credit card debt balance in full before they get charged interest.
Of course, there are some situations, particularly for those with good credit, where even the new credit card APR is affordable, especially in comparison to what a person may have been originally paying for their first credit card. If this is the case, a person can continue making credit card payments as they normally would have, and pay off the balance when they can. Measuring the cost of the credit at this point is simply a personal evaluation of the needs and the credit card services.
Finally, a person needs to make sure that nothing has to be done to ensure that the introductory rate stays in place. For example, many credit card companies may require their customers have a certain level of activity or use with the card to maintain that wondrous zero percent APR. It is through this requirement that the credit card company gets their profit. But for the consumer, it can defeat the purpose of why they may have gotten the credit card in the first place… which is trying to deal with existing debt in a more affordable way.
Other requirements may be simpler, such as paying one’s bills on time. To do this one must first make the credit card debt in the first place, so they need to immediately go on and transfer the balance. Since the goal is to pay off the bill eventually anyway, trying to maintain monthly credit card payments shouldn’t be a problem. However, don’t take this lightly, a late payment can trigger the termination of the credit card introductory rate, be grounds for a late fee, and enforce a clause to increase the overall rate of the card for all transactions. It will certainly behoove any consumer using these credit cards to be certain they have the best credit card rate when doing a balance transfer.
The balance transfer can be an excellent way to lower debt for many individuals who have credit cards with high APRs. They just have to make sure that in the process of doing a balance transfer they: investigate to see if there are any fees associated with the transfer, understand the interest rate, the length of time the rate is good for and conditions on repayment. When in doubt, find a new credit card. Shopping and comparing a credit card online is easy. As long as these things are kept in mind, the balance transfer can be one’s ticket towards financial freedom.
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