Do you think that balance transfer credit card is a good debt relief option? It is. But you have to be under the right debt and financial circumstances to make it work.
For anyone who are in debt, you have to understand that there is no such things as a one-size fits all solution. Although there are a lot of options, you need to find the right one that will help you based on your unique financial situation.
When it comes to credit card debt, you have more than one option. In fact, compared to mortgage or students loans, you can practically use any type of debt relief program to get rid of your credit card debt. But the question is, which of the option will suit your financial situation and goals more perfectly than the rest?
Based on the data consolidated by NerdWallet.com, the average credit card debt as of April 2014 is at $15,191 per consumer. In total, the card debt is at $854.2 billion. That is a huge amount to pay off. In some cases, people find it hard to complete their payments because their debts are distributed among multiple credit card accounts.
If you know that you current financial situation can afford to pay off everything that you owe on your cards without compromising your basic needs, then balance transfer can be a great option for you. And if you only want to make your payments a lot more simple, then transferring them under one credit card account will help you simplify your payment terms.
4 signs that you can transfer the balance of your credit cards
Apart from the two scenarios that we mentioned, there are also 4 more signs that you need to look into to determine if balance transfer can solve your credit card problems for you. They are not the complete list of what you should consider and all 5 of them do not have to be true in your particular case.
- You used to be able to pay your balance in full. Life is uncertain and in some cases, people who opt for balance transfer used to pay their balance in full. But because of unforeseen circumstances, they ended up with compromised finances. This means they are now unable to pay their full credit card balance like they used to. This is not always their fault but that does not mean the payment responsibility will be gone. This is a great time to keep your losses small by transferring the balance of your high interest cards to 0% ones. That way, you can maximize your payments and have them credited to your principal debt – not the interest. According to CardHub.com, the length of a 0% balance transfer introductory offer is longest when you avail them during the first quarter of the year. Keep this in mind when applying for a balance transfer card.
- You usually carry a balance on your card. If you have a habit of carrying a balance every month, you can transfer your balance into a new card that has a 0% or much lower interest than what you had before. This is to help you save money on the interest rate. Of course, it is ideal that you always pay off your balance in full but if it cannot be helped, make sure your card has a low interest one.
- You want to enjoy cash back rewards. In most cases, balance transfer cards are offered with rewards. You want to choose a card that will not only give you zero or low interest, but rewards for every purchase – like a 5% cashback on purchases that meet certain requirements. Be careful to choose a card with perks that perfectly suit your spending lifestyle. That way, you can pursue your usual spending habits and save a lot because of the rewards that you can getting with every card use.
- You cannot keep up with your multiple credit card balances. Another strong reason to opt for balance transfer, as we mentioned before, is to simplify your payment plan. Some people have a knack for being organized so managing multiple credit card accounts is not a problem for them. But if that is not your strength, you want to make sure that you can manage your accounts well. That way, you do not have to worry about forgetting to pay one credit card account.
If you have any one of these signs, it might be a good idea to put balance transfer as one of your options to solve your credit card debt problems. But take note that there are other factors to consider when you are finalizing your options to get out of debt. One of them is to know the possible pitfalls of this debt solution.
Pitfalls of transferring balances
There are pros and cons of using balance transfer for debt consolidation. It pays to concentrate on the pitfalls so you will know what you avoid.
Here are a couple that you do not want to happen to you.
- Being unprepared for the balance transfer fees. Some people think that transferring their balance will not generate costs. That is not true. There is a transfer fee that will be in effect once you shift your balance into a new card. This is usually 3%-5% of the amount you will transfer. Make sure you have this amount on hand before you apply for this debt solution. Read the fine print to know all the costs and fees that you have to pay for to make this debt solution happen.
- Not paying attention to the promo period. What is appealing about a balance transfer is you get to enjoy 0% or very low interest on your cards. But that does not mean it will be there forever. The card will change the interest rate after the promo period ends – in most cases, it will be a high interest rate. You need to be aware of this so you can pay off all or at least a significant portion of your card before it goes high again.
- Assuming that you will be approved. Although a balance transfer debt solution is ideal for some people, it does not mean you will not go through the application process. That being said, there is a chance that you will not be approved. You need to have a backup plan just in case the credit card company will not approve of your application. Not to worry though – there are a lot of balance transfer offers out there that you can apply to. Just make sure you find out why you are disapproved by the other so that you can fix it before you apply for another.
- Accumulating more debt. This is not just for balance transfers but for debt consolidation in general. Some people end up being too complacent when they simplify their debt payment plan. This results in the assumption that their debts are not as bad as they thought it was. If that is the case, they can be tempted to accumulate more debts.
Balance transfer, although it is very effective should be chosen after careful thought and consideration of your other options. Do not be too blinded by the offer of credit card companies that you skip through the other forms of debt relief programs. According to CreditCards.com, 32 out of 35 companies offering balance transfer cards have combo offers that will surely attract a lot of consumers with unmanageable debt. While it may seem like you can save a lot, do not be too quick to make a decision just yet. Consider all the possibilities and analyze how you plan to commit to this debt relief solution.