Balance transfer credit cards – if you are seriously bent on improving your credit score and getting out of debt, then you really should be taking advantage of these types of cards. Using your balance transfer credit cards is a way of shifting your debts from one company to another in order to enjoy introductory low interest rates, which is typically 0% APR for the first 6-18 months. Your debt is also kind of restructured when you transfer balances because your due dates are moved.
With this deal, credit card companies are willing to offer a lower interest rate. Although that will mean less profit for them, but the mere fact that you transferred your balance means that they have new business with you.
There are also the so called teaser rates, which are usually provided to lure prospective customers on transferring their existing credit card debts. The new credit card company will then offer you introductory interest rates ranging from zero to five percent for a fixed period of time. This feature of certain balance transfer credit cards permits you versatility when it comes to repaying your credit card debts because the due dates are usually extended. More and more people are taking advantage of this and this has led to a practice known as credit card hopping. Credit card holders transfer their debts rampantly among various cards to take advantage of the zero percent annual percentage rates while extending their repayment periods. This is a good thing but could also be a complicated matter if you do not know how credit card companies work.
What you should know before using a balance transfer credit cards
There is often a balance transfer fee on these balance transfer credit cards because the companies need to have a commission that is levied on your existing debt. This amount is then added to the outstanding payments you owe. Usually, the transfer fee is 3% so you have to decide if this is a good enough figure for you. But just ask around because there are a number of companies that allow you a 0% rate, but the teaser rate is just for a short period.
You also have to be careful because while the introductory rate on balance transfer credit cards is low, this is not forever. After all, as the name suggests, it is just introductory. Further spending on this card will incur you their regular interest charges. That is why you have to determine if a balance transfer is really beneficial.
Moreover, double check the rates being offered. Normally, banks advertise the rates that they offer to their average customer, not to those with bad credit. This means that while they may offer 0% APR for the first 6 months to regular customers, those with poor credit ratings are not accorded the same favor.
Lastly, know when the introductory offer lasts so that you can discontinue use of the card in case their regular rates are steep.
Balance transfer credit cards are good because you can use it to increase your credit rating for as long as you are careful with its use and you are aware of its benefits as well as its disadvantages.