Potential Downsides of a Balance Transfer Card

Every step we make in the financial world has an upside and downside. Knowing both sides help us to make the correct moves for our lifestyles. A Balance Transfer Card can seem like the perfect solution to some individuals. It is an opportunity to roll multiple card balances into one sum. Instead of deciding how much to pay on various credit cards, you can focus on paying off one. It sounds like the perfect solution, and it can be. But like all options, there are some drawbacks to be aware of. 

Transfer Fee

One of the most considerable drawbacks is the transfer fee. Depending on the card, you will pay 3%-5% of the amount you are transferring. An example would be if you are moving $500, you would need to pay between $15 and $25 depending on the rate. Depending on the amounts you want to transfer, this could add up to a lofty sum. When looking for a Balance Transfer Card, you will want to consider the transfer fee and compare them. The money you have to spend on this could have gone toward paying down your debt. The effect will depend on the total debt amount and the interest rates the other cards have. Punch the numbers to make sure it will be beneficial in the long run. 

Credit Score

All the moves and choices that we make can affect our credit score. We should always be trying to improve it when we can. The better the credit score, the more ideal terms, and rates will be in all things financial. A Balance Transfer Card is in the middle. In some cases, it can help, and others, hurt a credit score. Your score can suffer depending on the number of cards you have opened and how often you do. To have it benefit your score, you should take this action as few times as possible. Another way it can hurt a credit score is if the balance is above 30% of the credit limit. You need to be aware of your credit utilization ratio. Having too much debt will always have a negative impact on the credit score. Knowing the limit of the Balance Transfer Card will determine if it will be a positive or negative move. 

More Debt

Transferring your debt from other cards to a Balance Transfer Card does not terminate the original credit cards. It will feel like you have a lot of available credit, as those balances will be at zero. A positive of a Balance Transfer Card is that it makes what you owe feel more manageable. The amounts stayed the same. It is all just in the same place now. Many can get themselves into more trouble by continuing to use the cards you just emptied. The debt did disappear from the original card but not from your life. Self-control needs to be exercised here, or close the credit cards to eliminate the temptation. Always keep your mind on getting your debt eliminated or to a reasonable balance. 

APR Offers

When choosing a Balance Transfer Card, they will all be advertising extremely low or no interest rates to start. The final offer they give you will be based on your credit score. Those with poor credit scores will not be able to get the lowest rate advertised. Another thing to look into is how long that rate is good for. Most Balance Transfer Cards will give a low rate for a certain period, usually around six to twenty-one months, and then it will go up for the life of the card. That APR will apply to the balance left. Unless you plan to pay off in full before the increase in the rate, you need to be able to manage the payments. Another part of the fine print you will want to understand is what happens if you miss a payment. Failure to pay, in most cases, will result in the promotional interest rate being terminated immediately. The higher rate will be applied, and the payments will increase to that level going forward. 

A Balance Transfer Card is a useful available option. Deciding if it is the right option for you takes balancing the pro and cons. Don’t overlook the downside because of the flashy upside. When in doubt, consult a financial advisor. Their job is to see the big picture and point you in the right direction for financial freedom.