Balance transfer cards can work great to help you pay off your credit card dues. This type of credit transaction will transfer credit card debt from one account to another. Suppose you have a high amount of credit card debt with a high rate of interest. In that case, you may potentially save a significant amount of money when you use the strategy. An example of this is the money you save by balance transfers to cards with an introductory offer of 0% interest. It lets you pay off your debt without paying interest.
What are the Pros and Cons of Balance Transfers?
You can always pay off your credit card debt in Australia through balance transfers. But it should be remembered that balance transfers are a mixed bag. This means paying off your credit card debt with them comes with some disadvantages besides its set of benefits. The benefits of balance transfer cards are as follows:
• It lets you save money by moving debt from accounts that charge a high-interest rate to an account that charges lower interests.
• It presents the convenience of not having to manage several separate credit card debt payments by yourself. You can pay all of them through your balance transfer card by combining your existing debts.
• There are usually attractive promotional offers that accompany balance transfer cards. Such offers often include a 0% introductory interest rate, as we mentioned above. You can use this to pay off your debt by the reduced interest amounts swiftly.
As with everything else, there are a few disadvantages to balance transfer cards as well. Some of them are:
• Typically, a balance transfer fee comes associated with the balance transfer. This amount is usually three to five percent of the debt amount you transfer to your new balance transfer card. So, it is crucial to calculate your savings beforehand.
• Remember, balance transfer cards come with the additional risk of making further purchases instead of paying off your debt. Such purchases might put you at financial risk!
It’s also important to know that the pros and cons vary from country to country and bank to bank. We recommend using a comparison service as a starting point. Here’s one for the US, this one’s for Canadians, and this is for Australians. The beauty of these sites is that you get a good idea of the credit card market straight away, then you can continue and do further research from that foundation if you wish to.
How Does a Balance Transfer Affect Credit Scores?
It is not uncommon to find people being wary of using balance transfer cards and save on interest payments due to apprehensions that such cards might negatively affect their credit scores. While this is indeed the short-term case for some instances of credit history but typically a balance transfer card is a great long term option. Having a balance transfer card affects your credit scores in several ways. These include:
• Upon application for a balance transfer card, usually, a hard inquiry of your credit report is requested. This results in a slight lowering of your credit score.
• A new card serves to reduce bank account average age. This too serves to negatively affect your credit scores.
• On the other hand, a new card expands your credit limit. This in turn lowers the utilization of credit which might work positive wonders for your credit score.
• You can choose to transfer several balances to your new card resulting in a reduction of balance accounts. This too gives a healthy boost to your credit scores.
Who Makes More Credit Card Purchases?
Though credit cards are almost the de-facto method of making purchases in the US, it wasn’t always so. The figures have boomed since the start of the 90s. It went from an annual $69 billion to $1.8 Trillion in 2006 as per the site demos.org. It is indeed true that the financially tough times caused some of the debt. Still, the fact remains that now we use credit cards to make small purchases of essential services and products.
The situation, however, is not the same everywhere. A Citibank poll found the Chinese to use credit cards for high-cost items like home-electronics. Australians use credit cards as a daily financial instrument, with half of the surveyed people using it for everyday necessities like utility bills. They make $7,889 worth of transactions, according to Euromonitor International.
Forrester Research reveals people in different regions prefer different modes of payment for the things they shop online too. Americans prefer credit cards, while the debit card is the tool of choice for French and British people. Germans fall back on online bank account transfers and even PayPal.
man holding credit card using tablet -DepositPhotos