Most credit cards with balance transfers have introductory 0% APR offers. So, by paying off the balance during the promotional period, you can effectively save a ton of money.
A balance transfer holds a lot of promise for people who are in debt, as opposed to leaving the balance unpaid on their original card and accruing interest. This workaround, however, has a few glaring flaws that cannot be ignored.
End of the Introductory APR
Even before joining the balance transfer bandwagon, you should be aware of the new card’s regular ongoing APR, which takes effect after the promotional APR period.
One of the most significant errors someone can make is not knowing when the 0% offer expires. The remaining balance will be subject to the card’s standard APR if the transferred debt is not paid in full when due. Additionally, interest rates may increase significantly after the introductory period has ended.
As a result, it is beneficial to carefully read the card’s terms and disclosures and to take note of the timeline. Try to pay off the balance before the rate of interest increases, even if that means paying more than the minimum each month.
Added Cost in Balance Transfer Fees
Balance transfers are not free. Credit cards that offer balance transfers typically impose a fee of 3% to 5% of the transferred amount, with a fixed minimum of $5 to $10.
For instance, a $10,000 transfer with a 5% transfer fee can result in $500, which is a sizable additional expense, especially when you’re trying to save money.
Analyze the numbers carefully before jumping ship. Make sure the annual fee for the new card and the balance transfer fee don’t combine to offer you a bad deal overall. Additionally, the available balance on the old credit card will end up being relatively profitable over time.
Hurts Your Credit Score
Balance transfers have also been discovered to have a negative impact on credit scores, much like how applying for and opening a new credit card impacts your credit history. Furthermore, having a credit card with a balance that exceeds 30% of the credit limit hurts your credit score.
It is well known that switching your credit card balance to a card with insufficient credit can seriously harm your credit score. All of this is significant because obtaining a balance transfer credit card requires good credit in the first place.
Racking Up More Debt
Another way to increase the amount of credit you have available to you is to transfer your balance to a new credit card. This necessitates extra self-control and restraint from making extravagant purchases because doing so could trap you in even deeper debt.
Moving money around without making any real savings and not paying off the existing debt during the introductory period is a bad idea.
The Takeaway
Balance transfers typically make sense when you can find the lowest balance transfer fees or the longest suitable time frame for debt repayment. Once you’ve considered the card’s usefulness beyond its promotional period and determined that the 0% APR period is appropriate for your particular situation, transferring balances becomes a wise tactical choice.
At Breeze Lease Solutions, we believe that knowledge is power. To learn more about leasing solutions, contact us today.