Credit Card Balance Transfer

Credit Card Balance Transfer (1)

A credit card is a financial instrument, which let people make cashless transactions. Credit cards have pre-set credit limits and that limit is decided by the card issuer (bank or financial institution) based on a person’s earlier credit history, income, and credit score.

Credit cards can be of plastic or metal material, can be used to pay for services or goods, and charge interest on the money spent. It also has perks like cashback, discounts, reward miles, etc. Credit cards charge an annual fee, which is charged by the card issuer to extend the credit card to the person, this fee can range from $50-$700. Some credit cards don’t charge an annual fee, but cards that offer discounts or reward miles generally charge a fee.

Balance Transfer-

A balance transfer is the transfer of an amount from one account to another, which is generally at another financial institution or bank. The credit card industry tries to acquire more and more customers and that’s why they will go to lengths to have new credit card users, balance transfer is one of their most important tricks.

In a credit card, a balance transfer is moving the debt of one credit card to another account with a new card issuer. And the new card issuer will pay off that previous debt, which makes it the issuer’s debt in their account. Most credit card issuers impose a fee on the balance transfer, generally, 3%-5% of the amount transferred. Some other issuers give a 0% APR (Annual Percentage Rate) to new applicants while a balance transfer.

Credit Card Balance Transfer-

A balance transfer is done to save money on interest charges or the credit card. Opening a new account with 0% APR while balance transferring offers free interest for only a set period with only minimum payments from time to time, and on the surface, this might look like a wise choice, but one has to keep in mind the balance transfer fee, which can vary from $3 to $5, for every $1000 transfer, one has to pay $30 to $50, which might result in a loss deal for the credit card user. Because if the user manages to pay off the balance sooner than the required time, then the balance transfer fee he pays is greater than the money he saved at 0% interest.

Transferring a balance from a higher-interest credit card to a lower-interest credit card can prove to be a great way to save money and clear off the debt, but if not cautiously read, understood, or observed the criteria of a balance transfer, the pros, and cons of the new card issuer, transfer fee, and the interest rates, the decision of balance transfer might put a person in even greater debt and result in a bad financial decision.

Closing thoughts-

A balance transfer wouldn’t be beneficial if it wouldn’t save you money. The solution to avoid the possibility of even higher debt while transferring from higher-interest to lower-interest is keeping open the previous account. While using a credit card and doing balance transfers, one must keep in might how it will impact one’s credit history, because frequent balance transfers or multiple new requests for credit will seem like a sign of financial stress. 

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