Manage your debt with a balance transfer card

Posted on Friday, August 11, 2017 - 09:57

Paying off credit card debt with another credit card may seem rather counterproductive. However, switching to a balance transfer credit card could be a good way of taking stock of finances, especially for small to medium business owners who may have already accumulated debt on high-interest credit cards.

In the long run you could end up saving on interest rates while also simplifying the management of multiple debt payments by transferring the balance to a card offering lower interest rates and additional benefits.

Switching to a balance transfer card may prove to be a viable solution for you and your business however, before making the change, there are a few things to take into account.

Expiration of introductory rate

What makes a balance transfer card so appealing is the exceptionally low, or non-existent, interest rate. Unfortunately these rates do expire, often between 12 to 18 months (sometimes longer). After this the interest rates could increase anywhere from 12percent to 22 percent. Missing monthly payments could result in higher accumulated debt, so being committed to meeting monthly instalments is essential.

Additional fees

Transferring balances to a single, low interest card usually involves additional fees. Many credit card companies will charge a percentage of the transferred amount, which commonly ranges between three and five percent. Many card holders forget to take these additional fees into account when making the switch.

Be cautious with new purchases

Limiting the use of your credit card, or not using it at all, could make it easier to pay off debt. Need another reason to avoid making new purchases with your balance transfer card? Some credit cards stipulate that new purchases will collect interest at the standard industry rate. In some instances only the initial balance that was transferred to the new card will receive zero to low interest rates, so be weary of this.

You may be turned down

People and businesses do get turned down when applying for balance transfer cards and this is often due to their credit history. If you have a poor credit rating and a history of not making payments, this could reduce your chances of being approved for a new card.

The good news is, having taken these factors into account, switching to a balance transfer credit card could save a substantial amount.

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Filed Under: Money Smarts