Is it worth considering a credit card balance transfer?
A credit card balance transfer is a type of debt consolidation that can help you pay off your growing credit card debt faster. This involves transferring your debt from one or more credit cards to a new card with a temporary low interest rate to reduce the number and size of your monthly repayments.
To attract customers, some lenders may even not charge interest during the introductory or promotional period, allowing you to repay your loan without any interest payments. However, your introductory low rate will return to the original rate after the promotional period ends. To avoid having to pay interest on your transferred balance, it may be best to pay off the debt before the end of the low rate period.
A credit card balance transfer can be a good way to settle your debt if you choose a low interest rate agreement with a reasonably long term to repay the full amount owed. It can also have a positive impact on your credit score, unless you struggle to make your monthly repayments or keep spending, only to find yourself in a worse financial situation than before.
Is it bad to transfer credit card balances?
While it’s not bad to transfer your credit card balances to pay off your debt, it’s possible to make mistakes if you don’t understand how balance transfers work. For example, the low rate period on a balance transfer credit card is only for a limited time. However, a lower interest rate might tempt you to spend more, which might not leave room for additional repayments to pay off your debt.
If you’re not careful, you can accidentally sign up for a credit card that charges more interest than your old credit card after the introductory period ends. In this situation, you may end up paying more interest on your debt than before the balance transfer.
Does a credit card money transfer affect my credit rating?
Yes, a credit card money transfer can improve or hurt your credit score, depending on how you use it. For example, the money you save on interest with a balance transfer can help reduce your outstanding debt faster, which can improve your credit score over time. Paying your credit card bill on time each month will also boost your credit score. On the other hand, if you miss your repayments or have trouble paying your bills on time, this will be recorded in your credit file and lower your credit score.
It is also possible that if you are unable to repay all of your debt during the low interest rate period, you may consider another balance transfer once your interest rate returns to normal. . Multiple credit card balance transfers over a short period of time could indirectly hurt your credit score because they might look bad on your credit report.
Another factor that could hurt your credit score after a balance transfer is how you manage your old cards. If you don’t close your old credit cards after transferring your outstanding debt to a new card, it can have a negative effect on your credit score unless you regularly pay off all open accounts.
Canceling your old credit cards can prevent you from racking up additional debt. However, keeping existing accounts can sometimes improve your credit rating by keeping the average account age high. Therefore, you should weigh the pros and cons carefully before deciding to close an existing credit card, as the payment history associated with the card will also be removed from your file.
Finally, while shopping around for the best deal possible on a balance transfer card is recommended, making multiple credit card balance transfer requests can negatively impact your credit score. Each time you apply for new credit, the creditor pulls your credit report to determine your creditworthiness as a borrower, resulting in a thorough investigation.
These serious inquiries appear on your credit report and can have a negative effect on your credit rating. Therefore, it is advisable to do your research before applying for a balance transfer card and also do the math to ensure that you can repay the transferred debt within the specified time frame.