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When your monthly credit card payments hardly touch the surface of your total debt, it might make you feel overwhelmed. The good news is that you may no longer have to deal with a high credit card bill and an unmovable balance. If your credit is still in excellent standing, a balance transfer credit card may be beneficial.

A low or zero percent introductory annual percentage rate (APR) may allow you to pay off your credit card amount faster, save money on interest, and potentially enhance your credit score. However, even with all of the advantages, a balance transfer may not be the best option for you when the disadvantages are considered.

We asked various experts to discuss the benefits and drawbacks of a balance transfer, so you can determine whether it is the best way to accelerate your debt repayment.

Pros of Balance Transfers

If you meet the eligibility requirements, balance transfer credit cards provide numerous advantages. Here’s a breakdown of the main pros:

You’ll pay less interest

The primary reason consumers want a balance transfer credit card is to take advantage of a low or 0% introductory APR offer. By switching your debt to this new card, you will instantly begin saving on interest. Every payment you make helps to reduce the amount you owe, making the balance transfer credit card an effective instrument for debt relief. When more of your monthly payment is applied to the principal, you will pay off your debt faster and pay less interest overall.

You can consolidate debt payments

Depending on the credit limit you receive, your new credit card may allow you to transfer numerous credit card debt balances to a single card. As a result, you are able to consolidate various payments, which simplifies your finances. If you’ve been battling to keep track of many due dates and payment amounts, this is incredibly beneficial.

“If you have multiple credit card debts, transferring all balances to one card simplifies your financial management.” Sudhir Khatwani, founder of The Money Mongers, says you’ll now have only one monthly payment to worry about, making it easier to track and less likely to miss due dates.

You can capitalize on the perks of a new card

The balance transfer credit card you select may offer more than a 0% intro APR. It may also provide superior overall benefits, such as cash back, rewards, and discounts.

“New generations of cardholders are accustomed to churning – switching from one service to another, such as streaming, cable, and mobile phone providers. They may also believe they are not receiving full benefits or services from an existing issuer. Changing cards and transferring balances can often result in greater benefits, such as an airline card that earns airfare miles,” Martini notes.

Your credit score may improve

According to Dennis Shirshikov, Awning.com’s head of growth and a financial professor at City University of New York, “a side benefit of transferring a balance to the right card is improving your credit score by reducing your credit utilization ratio.”

Your credit utilization ratio compares the amount of credit you are utilizing to the amount of credit available to you. It is commonly represented as a percentage and is determined by dividing the total amount owed in revolving credit accounts by the total credit limits on those accounts.

When your credit usage is high, which indicates you are utilizing a significant part of your available credit, it can have a negative influence on your credit score. Opening a balance transfer credit card can reduce your credit utilization ratio because you will have more available credit and will be able to pay off your bill without incurring interest.

Cons of Balance Transfers

On the other hand, balance transfer credit cards have some drawbacks. If you analyze the benefits and drawbacks of transferring a credit card balance and determine that the downsides outweigh the benefits, you should seek balance transfer alternatives. Here are various caveats to look out for:

You may not qualify for a worthy card

To be qualified for the finest balance transfer credit card deals, you must typically have outstanding or excellent credit. While there are possibilities for balance transfer cards with bad credit, they are often inferior to the finest cards available. If your credit score is poor, you may not be eligible for a card with a 0% intro APR offer, and even if you are, the terms may not be favorable.

Read Also: Top 10 Tips for Getting Approved for a Personal Loan

Instead, a debt management plan may provide some assistance. Credit counseling firms provide these programs, which include perks such as lower interest rates and a single monthly payment, allowing you to pay off your debt more quickly without requiring a minimum credit score.

A balance transfer fee will likely apply

Depending on the card’s rules and current promotions, you may be required to pay a balance transfer fee. This cost typically ranges from 3 to 5 percent of the entire transfer amount and may be subject to minimum fees.

Negotiating or avoiding balance transfer fees might be difficult, but there are credit cards that do not charge such costs. In addition to the balance transfer cards offered by major issuers, several credit unions provide cards with no balance transfer fees.

You could make the problem worse

The truth is that with a balance transfer card, you are merely transferring money around without addressing your debt problem. In fact, if you don’t follow sound financial spending and repaying habits, you may exacerbate the situation.

“Remember that a credit transfer is not free money to help you pay off your open balance. “It’s just a discounted opportunity to save money and pay off a balance,” warns Martini.

Having a new card may urge you to charge even more, especially if your new balance transfer card provides a 0% intro APR on transactions. Create a realistic budget that records your income and spending in a responsible manner. Avoid impulse purchases and attempt to pay more than the minimum balance on your credit cards each month.

“Without discipline and a plan, a balance transfer can tempt you to accrue more debt, exacerbating your financial situation,” warns Andrew Latham, a certified financial advisor.

The introductory APR offer won’t last forever

It’s crucial to know that 0% intro APR offers often expire 12 to 21 months after you open the card. This gives you a short period to benefit, but it might also give you the mistaken impression that you will not be charged interest indefinitely.

“It’s important to read the fine print, as it varies per promotion,” Martini explains. “Before initiating any balance transfer, determine how long the new issuer will offer you a 0% or low interest rate.” To make the transfer work in your favor, pay off the balance before the introductory rate expires.”

To ensure that you pay off the balance before the promotional period expires, use Bankrate’s credit card balance transfer calculator to calculate the monthly payment amount that will help you achieve your objective.

Your credit score could drop

Every time you apply for a new credit card, your credit score may decline by up to ten points, maybe for several months. That’s because applying for a new card typically results in a hard inquiry, which might temporarily reduce your credit score. Other variables, such as utilizing more of your previously available credit or closing a paid-off credit card, may also affect your credit score.

If you’re worried about your score lowering, remember that it’s just temporary. You might also avoid the additional impact to your credit score by arranging a payment plan with your credit card issuer. This appears to involve automating payments or making smaller, more regular payments that are easier to manage.

You might not qualify for a loan

If you intend to apply for a mortgage, auto loan, home equity loan, or personal loan in the near future, avoid getting a balance transfer credit card right now. As previously stated, applying for such a card may temporarily lower your credit score by resulting in a hard inquiry to your credit profile. This may make it more difficult to get authorized for the loan you desire or to obtain a low interest rate. In this instance, it may be beneficial to continue using your present credit card while making larger or extra payments on a regular basis to eliminate your debt more quickly.

Alternatively, you might use a portion of the proceeds from a personal loan or home equity loan to consolidate and repay your higher-interest credit card debt.

“Personal loans are available, often easy to get and usually have a much lower interest rate than any credit card,” claims Martini.

Do Balance Transfers Hurt Credit Score?

A balance transfer might help you improve your credit over time as you try to pay off your debt. However, opening many new credit cards, transferring your balance multiple times, or adding to your debt can all harm your credit score.

A balance transfer credit card allows you to transfer existing debts to a new card, which usually has a promotional annual percentage rate (APR) as low as 0% for a set period of time. You can combine debt from numerous sources into a single monthly payment and pay it off interest-free over 12 to 21 months, depending on the card. Paying off debt and maintaining a low total credit use rate often improves your credit score.

Opening a balance transfer credit card can hurt your credit. Here’s what to watch out for:

Hard Inquiries

When you apply for a balance transfer credit card, a hard inquiry will appear on your credit report. One hard inquiry can have a small, temporary effect on your scores—but multiple hard inquiries in a short time can have a greater negative effect. When shopping for a balance transfer card, compare card offers before submitting a full application and opt for just one card to keep inquiries to a minimum.

Lower Average Account Age

As with any new line of credit, opening a balance transfer credit card could negatively affect your credit by lowering the average age of your accounts. Lenders value long credit histories because experienced borrowers are more likely to use their credit appropriately.

While opening a new account could temporarily cause a dip in your credit score, the benefits of strategically using a balance transfer card to pay off debt will generally outweigh it. To be safe, avoid closing older accounts around the time you open a new one so you’re not doubly affected.

Can a Balance Transfer Improve Your Credit?

Completing a balance transfer can improve your credit. Here’s how.

Lower Credit Utilization

Moving multiple debts to a single balance transfer credit card could decrease your overall credit utilization rate, or the percentage of available revolving credit you’re using. Lower credit utilization can improve credit scores.

When you get a new card, your total credit limit will increase, and after moving balances to that new account, the utilization rates on the previous accounts will appear as 0% on your credit report (assuming you pay off the full balances on the other accounts). That lowers your average utilization, which accounts for 30% of your FICO® Score , the credit score used by 90% of top lenders.

Example: Let’s say you have two credit cards: one with a $1,000 credit limit and a $500 balance, and another with a $3,000 credit limit and a $2,000 balance. That would give you a total credit utilization rate of 63%. If you get a balance transfer card with a $5,000 credit limit and move those two card balances to it, your total credit limit rises to $9,000 and your total utilization drops to 28%. That’s under the 30% maximum credit utilization rate that experts recommend—and significantly lower than the 63% you had previously, which could help your scores.

Reduced Balance Over Time

The goal of getting a balance transfer card is to make it possible to pay off debt at a lower cost. If you take advantage of the 0% APR period and use your interest savings to pay down the balance, your debt will decrease over time. That can have a major impact on your credit score.

Streamlined Bills

Payment history accounts for 35%, the largest share, of your FICO® Score. That means on-time payments over time can do the most to help your scores, while late or missed payments can have the biggest negative effect.

Having just one credit card bill to pay each month, as opposed to several, may help ensure you make that payment on time. That, in turn, can have the largest positive impact on your credit over time.

Final Thoughts

A balance transfer card might help you save money on interest while repaying debt, but you must understand the terms. It is worth considering if you have good credit—a FICO 8 score of 670 or higher—and a strategy to pay off the debt before the promotional APR expires.

A balance transfer credit card is not the best debt repayment option for everyone, and not everyone is eligible. Experian CreditMatch™ matches individuals with balance transfer cards or debt consolidation loans that fit their financial needs and credit profile.

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