Visa MasterCard Discovery

Balance transfer offers from credit card companies can be tricky

[Thursday, November 11th, 2010]

According to reports on credit cards, a credit card that allows balance transfer at a low introductory rate could help one get rid of huge outstanding balances without accruing too much interests. It is also a better strategy than many other ways of reducing one`s outstanding balance. At the same time it could turn into quite a tricky deal too, if the credit card customer is not careful enough. Credit card holders can use the balance transfer deal to make savings on the interest fees. This is because a lot of lenders offer 0 percent or low interest rate in the promotional period. Due to this the customer doesn`t accrue any interest on their outstanding balance for a whole year.

Along with not building on the existing debt for some period of time, credit card customers can actually end up paying down a major part of the outstanding balance. This can be achieved by increasing the amount paid down to the kinder every month along with a reduction in the credit card spending.

In a few scenarios, it is quite possible that not only does one get a credit card that allows balance transfer but also allow the credit card customer to earn good credit card rewards. But reports on these cards have suggested that incentivized by the additional rewards, credit card customers are led to get involved in additional debt, which is not an impressive idea if one is trying to cut down on their outstanding balance. Therefore it is quite obvious that not every balance transfer credit card is beneficial. A lender might often charge a fee for the transaction to be complete. What needs to be considered is that although this additional fee might be a small percentage of the credit card balance, it might be more than what the credit card holder would have paid to the credit card held earlier in terms of interest, as per the old interest rates.

Another major disadvantage that comes with balance transfer is the adverse affect that it has on the credit score of the credit card holder. The credit card might also come with a credit limit lower than that of the older credit card. This means that the credit utilization ratio will be much higher in case of the second credit card for the same debt or outstanding balance. This too will lower the credit score.

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