Pros and cons of 0 balance transfer

4 May 2015
Category Debt
4 May 2015, Comments 1

So you find you are drowning in debt and the minimum payment on your credit card is not bringing down the balance, what do you do? You could consider a credit card balance transfer.

What is a credit card balance transfer?

This is when you pay off the balance on existing cards and/or loans by transferring them to a new credit card account. There are offers out there at the moment where you can transfer the balance to a new credit card that has a zero interest rate (0 balance transfer). The amount that you will be able to transfer will depend on the credit card provider.

Pros of balance transfers

0 balance transfer-You will be able to save on interest.

-You can pay down debt faster as you are making a dent in the principal (or loan amount) rather than just paying interest.

-Focus. By putting all your credit cards together it can ease the administrative burden of paying multiple credit cards. This will allow you to focus on paying down debt and seeing the benefit of your efforts as you see the level of debt consistently drop. This may have a positive impact on your enthusiasm for paying down debt!

Cons of credit card balance transfer

-The amount that you will be able to transfer will depend on the credit card provider. If they set your limit at $3,500 but your debt is $4,500, your credit card balance transfer will be limited to $3, will only be able to transfer the $3,500. But an transfer of $3,500 is better than nothing. The risk is that you don’t reduce the credit card limit on your existing card/s and run up the debt again.

-The 0 balance transfer credit card may not be available to you if you don’t have a good credit record. However, you could always check if a credit card with a lower interest rate is available.

-If you think that once that the 0 balance transfer time limit has expired that you will roll the balance to another credit card provider, you may wish to rethink this. Hey, this is only a credit card transfer what harm can it do? Eventually (or maybe now) you will wish to purchase your first home (a much larger debt, hopefully!) all this applying for credit (whether approved or not) will go on to your credit record. Every time you apply for credit a record is recorded on your credit file (and late payments as well, but that is another article).

-You must check the terms and conditions of the deal you have signed up for. If you spend on the new credit card, you will generally find that the interest rate will not be 0% rate but at the higher standard rate.

– Lenders in the future may perceive you as being higher risk and apply a higher interest rate to your loan. For that matter, if you do the 0 balance transfer to often you may eventually find that you are not excepted too many credit cardsfor that new card.

-If you know that you lack control in your spending, you may be better off rolling all debts into a personal loan. Although the interest rate may be higher than the 0 balance transfer, personal loans have the benefit of a set time frame and regular payments (higher than credit card minimums).

 -This interest free balance transfers will only for a limited time say 6 months to 3 years, after this the interest rate will revert to the standard rate which may be over 20%.

 -Some providers charge a fee in order to complete the balance transfer, which is generally a percentage of the transfer balance. Therefore you should way up whether the interest free balance transfer is worthwhile when the upfront fee is charged.

The 0 balance transfer is a winner if you qualify. You can make great progress if you plan out your budget and pay down as much as possible during the interest free period. However, if you can’t control your spending a personal loan may be the option for you.

One response on “Pros and cons of 0 balance transfer

  1. Cienna says:

    Informative article. I have combined my debts together under one credit card and it helped me to manage my cash flow. If a larger debt you may want to consider a personal loan

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