Balance Transfer Credit Cards and Debt Consolidation
Written by Michael Martin Leaño
Although it's been reported by the esteemed Wall Street Journal that the elusive 0% credit card balance transfer has become an endangered species of sorts when it comes to card incentives, it still exists. Sure, most companies are altering their business models to accommodate present trends, but the fact of the matter is, they still exist and if you know what you're doing, you can still use it strategically to save you a fortune in fees. Nevertheless, it's only fair to warn you that without due precaution and diligence, your balance transfer deals can lead to disaster and end up costing you money instead of saving your funds, ironically enough. The path to debt consolidation with balance transfer credit cards is fraught with peril, more often that not. The question is, "Is it worthwhile?" The answer to that is, "It depends."
Factoring Transfer Fee Costs and Number Crunching
Banks and financial institutions that issue credit cards typically use 0% balance transfer offerings to entice new, high quality customers to try out their services. It works like this; balance transfers are most advantageous to people who already have accounts in other banks but want to shift to another bank for whatever reason. Instead of going through the hassle of withdrawing and redepositing their money into a new account, they can take advantage of the 0% balance transfer feature and transfer their existing balance into the new account without the hassle or fees to worry about.
As with any long term financial decisions, Research the advantages and disadvantages of each options before choosing a solution that’s most appropriate to your needs. The promotional rate and the length of the term should also be factored in before you make your decision.
For example, if the 0% promo rate lasts only half a year and there's a 5% balance transfer fee, then that basically amounts to a 10% annual interest rate. Learning to use a balance transfer calculator will help you understand whether or not a balance transfer credit card offer is a good deal for you.
Debt Consolidation with 0% Balance Transfers
You should also remember, some 0% or low-interest balance transfer credit card may offer fewer rewards compared to a normal credit card in exchange for the service. This could be losing reward points when transferring balance from a rewards card, additional fees and annual interest rate depending on the length of promos, and so forth.
On the other hand, a 0% balance transfer credit card can be beneficial in other ways. You'll probably acquire some economic perks during the introductory period provided that you play by the rules and pay your bills on a timely basis.
Be aware some benefits may short-term in nature or only applicable to your credit card debts. While acquiring savings is always great, relying only on a balance transfer isn't comprehensive enough to pay off your debt. Consolidating multiple cards into one account will allow you to cancel unnecessary credit cards and with it the fees required to maintain the service. If you really want to consolidate your debt, you need to implement a long-term strategy.