Huge Credit Card debt giving you sleepless nights? A balance transfer Credit Card can come to the rescue if used properly. Here are 3 things you must know about balance transfer Credit Cards.
If you are someone who is carrying high balances on multiple Credit Cards and looking for an avenue of escape from the huge Credit Card debt, then a balance transfer Credit Card can help you get out of your rut.
A balance transfer is simply the process of transferring high-interest debt from one or more Credit Cards to another card with a lower interest rate. But, before you take the big step, here are 3 things you must know about balance transfer Credit Cards.
Check The Introductory Rate
A lot of banks offer a low or even 0% introductory interest rate for balance transfers depending on your Credit Score. This introductory rate will help you pay off your Credit Card balance easily at lower monthly charges. However, this offer lasts for a limited time period and once that period is up, the interest rate could be significantly higher.
So, it’s smart to read all the terms and conditions properly and check what your card’s regular interest rate looks like to avoid falling into another debt trap. Once you are fine with the rate your bank is offering, work toward paying off your balance during the promotional period to save on interest cost.
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Watch Out For Balance Transfer Fees
Before applying for a balance transfer card, check out the fees and calculate what it’s really going to cost you. Banks usually charge rates between 2% and 3% per month of the transferred balance. So, if you are just paying the minimum due and not being able to pay the full amount, then you can consider this option. However, don’t forget to check charges, interest rates, and processing fee of the new card. Make sure you don’t end up paying higher charges than before once the repayment period ends.
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It Might Affect Your Credit Score
While a balance transfer can help you consolidate your existing Credit Card debt, it can also negatively impact Your Credit Score. When you opt for a new card, an inquiry is made by the financial institution to check your credit history that falls under hard inquiry. So, whenever you open new accounts, your score might take a dip.
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Also, when you transfer the balance from multiple cards to a new card, your credit utilisation ratio increases that can lower your score. The rule of thumb says that your overall credit utilisation should be below 30 per cent to maintain a good Credit Score.
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