Credit card balance transfers are transferring debt from one credit card to another. This is usually done from a credit card with a higher interest rate to the one with a low-interest rate. Many people opt to transfer their credit balance to save money. However, very few people manage to do so. Therefore, credit card transfers have merits and demerits for users.
Pros of transferring Credit card balances
1. Save money. One of the primary advantages of transferring credit card balances is saving money on interest. Most credit cards have ARPs ranging between 14% and 24%, which increases the debt due to interest rate. However, some credit cards have an introductory rate of 0% ARP. If you transfer your money from the card with a higher rate to the one with a low rate, you are likely to save money that would be eaten by interest.
2. Proper management of debts. It is easier to manage debts on one credit card than when they are on different cards. Credit card balances allow the user to transfer all the debts to one card. The user can easily manage all the debts and interest from one credit card. Additionally, merging debts into one credit card alleviates users from the burden of making multiple payments of debts.
3. Simplicity. Many people adopt the credit card transfer culture due to its simplicity. The users can easily transfer all credit card balances onto one card. It is argued that one account is easier to manage than multiple accounts. Once the user moves all credit card balances onto one account, payment and debt management are eased. Therefore, this practice is vital in simplifying the debt management process.
4. Improvement of credit scores. The credit scores of credit cards as rated in terms of ratios. If you transfer the balance from one card to another and the transferred balance adds to the overall credit balance, the credit utilization ratio is likely to drop. The credit score is said to have improved if the total credit card is below 30%. For example, if you transfer $20,000 to a credit card with a balance of $20,000, the new total credit adds up to $40,000, and the utilization ratio goes down to 25%. In conclusion, the credit score is improved when the utilization ratio is low.
5. Payment made easy. The user can have all the credits in one account or card. Making payments from multiple credit cards proves to be tiresome and time-wasting. Thankfully, there is a feature for making payments using only one credit card. This has simplified the payment process at the end of every month. Now you’ll only need one card that contains your credit balances to make payments.
6. Advantage of low credit card interest rate. Credit cards have diverse interest rates depending on the provider. Transferring money from a credit card with a high-interest rate to a card with low interest is advantageous to the user. The card’s credit score is likely to improve, and the user saves a lot of money on interest.
7. Enjoy the benefits of a card with better terms. Credit cards have diverse terms for the payment and management of credit balance. If the terms and conditions of your current card do not fit you, you can easily transfer your balances to another card with better terms.
Cons of transferring Credit card balances
Here are the disadvantages of transferring credit card balances:
1. Transfer fee. Most cards charge a transfer fee for everything transaction done. Credit cards with 0% ARP are likely to have more transfer fees than credit cards with higher ARPs. The transfer fee varies from one credit card to another.
2. Limited and time-based offers. Credit card companies have different ways to attract and maintain their customers. One of the enticing ways used by most companies is the time-based offers. The offers last for a predetermined period, and once the period ends, the regular terms apply. An excellent example of time-based offers is the 0% ARP offer. The 0% offers last only for 21 months, and the regular ARP terms apply after this period.
3. Credit scores may be affected. If you transfer the balance from one card to another, the credit utilization ratio may rise. For instance, your credit utilization ratio may rise if you have a new credit card and transfer all your balances from the old credit card to the new credit card. A good credit card should have a low utilization ratio.
4. Increased debt. In most cases, people get a new credit card to enjoy the benefit of 0% ARP. If you are not keen on your debt management and spending habit, you may build more debts that you cannot pay comfortably. Additionally, transferring all credit balances to one credit card increases the outstanding balance of the card in question. Therefore, transferring credit card balances and having many credit cards have downsides.
5. Penalties and termination of offers. Some credit cards have strict terms on how payments should be made. In case of late or default in payment of debts, it may lead to termination of offers. The regular ARPs rates apply to the available balance on the credit card. Sometimes, the credit card provider applies a penalty ARP to the available balance.
6. Credit limits. The amount of credit card balance that can be transferred from one card to another depends on numerous factors and issues. Sometimes, a card’s transferring limit is low compared to the available balance. In such cases, the user may be forced to use multiple cards or transfer only a portion of their debt.
7. Not all credit cards allow balance transfer. To possess a good credit card that allows the transfer of balances from one card to another, the applicant needs to have an approved credit card. Credit card scores help in approving credit cards.