Q: I’m considering a balance transfer to an interest-free card. Is that a good idea?
A: Transferring some or all of your credit card debt to one that includes an introductory interest-free period can help you move toward a debt-free life. However, there are some things to be aware of. Consider these pros and cons:
Your biggest push for making a balance transfer is to get a break from the interest that’s added to your balance. Depending on the offer, that may be up to 21 months. 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.
The more monthly bills you need to pay, the greater the chance of missing a payment. A balance transfer lets you consolidate the balance on several different cards into one, decreasing the number of monthly payments you need to make.
Taking this significant step toward paying down your debt may motivate more careful spending habits.
High interest fees
At the end of a predetermined amount of time with your new card, you’ll be hit with interest rates that are unusually high. While you may plan on paying down your balance before the interest rate kicks in, you may not be able to do so. Also, many balance transfer cards do not offer the same interest-free deal for new purchases.
Most balance transfer offers charge a minimum of 3-5% of the balance you’re transferring. So, while you may not be incurring interest, the transfer isn’t always free.
You need excellent credit
If you’re considering a transfer, know that you often need to have a credit score of at least 700.
Increased monthly bills
Often, a company offering to accept interest-free balance transfers will only accept a portion of the amount, adding one more monthly bill to track. This increases your chances of missing a payment. If your entire balance can’t be transferred, give priority to your interest-free payment, but don’t neglect other bills.
Negative impact on your credit score
With the recent changes to the VantageScore system, having less available credit while using a small percentage of it is considered the smart choice. Opening a new card without closing an old one means you will have more available credit and may lower your score. Also, having lots of open cards will make lenders view you as a risk.
If you’re sinking in credit card debt but don’t think a balance transfer is for you, we can help! A personal loan might be a solid first step toward debt freedom. Call, click, or stop by an Insight Branch today, to hear about our competitive rates and options.
Have you ever made a balance transfer? Tell us all about it in the comments!