If you are thinking about opening a balance transfer credit card, you may be timid about pulling the trigger and moving forward on this plan. Many who want to transfer the balance on their credit card may be dealing with high debt balances and may be afraid that any move might make their financial situation worse. When used correctly, however, a balance transfer credit card can be very beneficial to you. By analyzing the situation further, you can better determine if you would benefit by making this move.
Understanding the Fees
Before you sign up for a balance transfer credit card, it is important to understand the fees. The main fees that you may be charged with this type of card are a transfer fee and interest charges but other charges, such as late payment fees or annual fees, may also apply. Many balance transfer credit cards have no interest or very low interest charges for a limited period of time. After the limited period of time has expired, your rate may revert to a higher interest rate. In addition to understanding these charges, pay attention to the balance transfer fee. Each transfer fee is different for various accounts, but in some cases, this could equate to hundreds of dollars or more in charges. However, the money you may save in interest charges may make paying this fee worthwhile.
Reviewing the Repayment Options
To make the most use out of a balance transfer credit card, you should plan to pay off as much debt as possible during the limited period of time with no or low interest charges. It may be acceptable to still carry some balance after this period expires, but you should be prepared to pay a higher interest rate on the remaining balance.
Calculating the Benefits
As you can see, there are financial benefits associated with using a balance transfer credit card if you use the card wisely. You need to calculate the interest fees and transfer fees, and weigh this against the cost of keeping the debt in its current location. In addition, think about the added benefit of having easier debt management if you are consolidating cards as a result of opening up a balance transfer credit card.
In many cases, a balance transfer credit card is beneficial, but there are times when it may not make sense. By reviewing all of these factors carefully, you can more easily make a wise financial decision about how to proceed.