When Credit Card Balance Transfer Is for You

by : Ajeet Khurana

There was a time when my friends and I found that we were lagging way behind in our credit card bill repayments. There are the monthly insurance premiums, mortgages and car loans to think of, and we were not sure if our salaries (combined with our respective husbands' salaries) could take any more load.

A balance transfer was at the back of my mind, but I did not have enough knowledge about it to even have the courage to bring up the topic. Lucky for me that a friend of mine was working at a finance company. She gave me a lot of great advice that helped me out.

What is a balance transfer?
If you have not been able to pay for your credit card debt, you can transfer the balance to another card issuer. By doing this, you can avoid paying hefty amounts as late fees or other kinds of penalties. Many people opt for balance transfer because another issuer is offering lower interest rates.

Why is balance transfer a good idea?
If you have been unable to pay off your credit card balance, it is most likely that the finance charges are adding up to your debt on a monthly basis. If you avail of a balance transfer credit card, it is like starting afresh.

You do not have to worry about being charged with late payment fees as long as you keep paying for the minimum amount due every month. It is always better if you pay more of course. Take note of the fact that several balance transfer card issuers charge relatively low interest rates. You could end up saving quite a bit.

What is the procedure for obtaining balance transfer?
Well, you certainly cannot avoid shopping around and looking for balance transfer card vendors. Make sure that their interest rates are much lower compared to your old card issuer - it's possible to get 1% to 2% interest if you take your time negotiating and researching for a reputable company.

In fact, many banks are willing to offer balance transfer credit cards at no extra cost. Some will give you a grace period of six months to a year, where in they charge a lower interest on your transferred balance. Because these card issuers want your business, they will be more than happy to accommodate you. You could end up with a new card within four weeks.

How is my credit score affected with balance transfer?
This is the tricky part. If you are just going to transfer the balance to another card, your credit score is safe. Some say that it is better to close the old credit account, but that is not true in most cases. Not only does part of your credit history get "erased", your debt ratio will be affected negatively especially if your new card has a lower credit limit.

On the other hand, having an open bank account will also affect your credit score, but not as much as closing it. The best thing to do is to keep both accounts open. You could get rid of your old credit card or you could continue to use it, even as you make payments on the new card.