Balance transfers – save dollars, improve credit scores and eliminate debts

Wednesday, August 3rd, 2011
Updated: August 3rd, 2011
The content is accurate at the time of publication and is subject to change.

Balance transfer credit cards are those that allow you to pay off your entire outstanding balance on another credit card, while receiving additional perks for transferring your balance. There are several card issuers in the market that offer these credit cards with attractive terms and incentives. When used properly, balance transfer cards can help you manage your debts, lower your interests and prevent your credit score from dropping in the long run.

Top 5 incentives offered by balance transfer cards

  • Card issuers offer balance transfer cards with 0% introductory interest during the promotional period. Even if the introductory interest isn`t 0%, it is usually low and hovers around 3 – 4% at least for the first few months.
  • Introductory period for some balance transfer cards could last longer than 18 months if the credit card customer enjoys a good credit score.
  • Those applying for balance transfer credit cards will receive opening bonus points which can be redeemed as free air miles or for discounts on hotel and restaurant bills.
  • Balance transfer cards approved during holiday seasons usually offer cash discounts as high as $100 for milestone expenses of around $500 – $700 in the first 3 months, varying from one card to another.
  • 0% introductory interest is offered not only on balance transfer amount but also on all purchases during the introductory period in some cases. This feature might not be available on all balance transfer cards and customers shouldn`t commit the folly of presuming it. Understanding the fine print will help in getting further clarity on the benefits of the card.

Additional rewards usually offered for balance transfer cards

  • Travel benefits that could include travel accident coverage, lost luggage reimbursement, lost card replacement and redeemable air miles
  • Waiving off cash advance fee and sometimes even currency exchange fee, to facilitate withdrawing cash from ATMs and currency exchange while travelling abroad
  • 1% unlimited cash back along with 5% cash back on select expenses that could include groceries, medicines, gas or home improvement articles
  • Special benefits for shopping online on select merchant sites
  • Tie-ups with reputed brands that will allow you to enjoy discounts while purchasing brand merchandise

5 ways balance transfer cards will help your credit score

  • When you transfer your entire debt to one card, you can keep track of monthly payments more efficiently. Paying bills on time will help avoiding late fees and also improve your credit score due to consistency
  • During introductory period, there is no interest on your credit card debt. This will allow you to pay off your debt faster. Lowering the debt, will also help in improving your credit score.
  • Transferring your balance to another credit card will allow you to get more favorable terms on your credit card, thereby avoiding higher APR on the older credit card.
  • Annual fee is waived off on some reward credit cards. This will help you save around $100 – $150 that gets added to credit card debt year after year.
  • Your overall credit limit will increase because of the additional balance transfer card, while your debt goes down. This will lower your credit utilization ratio and hence improve your credit score substantially.

5 Precautions you need to take for balance transfer cards

Not all balance transfers offer the best deals. Some cards might not suit your financial situation, while some could do your finances a world of good. If you are transferring your balance to get rid of your excessive debt and to avoid paying high interest, at least for the first few months, here are some precautions that you need to take.

  • Make sure that the annual fee is waived off
  • Ensure that the introductory period is long enough to let you save substantial amount of money in the form of interests that you would otherwise have to pay
  • Double check the APR after the introductory period to ensure that it isn`t much higher compared to the APR on your current credit card. A high APR could undo all the benefits of the low or 0% introductory interest rate during the promotional period. If you have to use the credit card in the long run, its final APR should be as low as possible.
  • Make sure that the balance transfer fee on the credit card is not too high. A balance transfer fee of 3% can be usually expected. However, if you have a credit card debt in excess of $1000, even a balance transfer fee of 5% could add up to your card debt, instead of helping you to get rid of it.
  • Also find out if the introductory period promised is applicable for your credit history. Some card issuers offer variable introductory periods depending on your credit score. If your credit score is low, you might end up getting introductory period of only 3 – 6 months, while those with excellent credit score, could enjoy an introductory period longer than 12 months.

Using balance transfer cards to repair credit history

Balance transfer cards are excellent tools to repair your credit history. You need to be cognizant of the benefits of balance transfer cards in order to use them properly. Here are some tips to use balance transfer cards to improve credit history.

  • Opt for balance transfer cards that offer 0% introductory rate on all purchases as well, along with balance transfer amount
  • Calculate the minimum amount to be paid every month to repay the entire debt during the introductory period. You can negotiate the same with the card issuer who can provide you a payment plan
  • Along with consistent minimum monthly payments, pay some extra to get rid of the debt faster if you can and to improve your credit score
  • Avoid excessive purchases until the debt has been cleared
  • Don`t close the older credit cards as that will adversely affect your credit score
  • Don`t spend excessive amounts just to reach milestone expenses for discounts.

Balance transfer cards are certainly helpful if you are troubled by excessive debt and spiraling card interest. However, transferring your balance too often isn`t considered a healthy practice and hence you should steer clear of it if there are no substantial benefits.

All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.

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