Pros and Cons of Debt Consolidation through Balance Transfers

Using Low APR Balance Transfer Credit Cards For debt consolidation – The Pros And Cons

One form of debt consolidation is the low APR balance transfer credit card offer, which is something you can typically do on your own. In general, it involves transferring the debt on your higher APR credit cards to another card that has a much lower interest rate. In fact, some cards offer zero interest until a certain date, such as a year or two in the future.

These cards are often the best to work with when consolidating debt through balance transfer offers. Clearly, this move can save you a lot of money over time since you will pay much less interest than you have been. However, there are some drawbacks that make this decision a bad one for some consumers. Therefore, you should learn the pros and cons before you transfer a balance.

Benefits of a Balance Transfer Credit Card Offer

One of the main advantages of using a balance transfer to consolidate debt is that you can reduce the amount of payments you have. For example, if you currently have three small credit cards and transfer all the debt to one larger card, you can reduce the confusion that comes with several payments. The result is that you are less likely to miss a due date, which is good since missing a few payments can ruin your credit rating.

Another benefit is that if you choose wisely, you can save a lot of money over time by transferring debt to a lower interest card. If you constantly get offers in the mail for zero interest for six months, a year, or longer, it may make financial sense to transfer the debt from a card that has a high interest rate. You could end up saving hundreds of dollars in less than a year.

In addition, if you have recently increased your credit score and, therefore, get card offers with lower interest rates than before, you can take advantage of this. If you have debt on credit cards with high interest rates, and you get an offer for a fixed low rate, you can save money by transferring the debt. You might not save as much as when you use a card with zero interest, but you also do not have a time limit on the lower rate like you do when you use the introductory offers.

Disadvantages of Balance Transfer Offers

One drawback of using balance transfers for debt consolidation is that you typically have a limited period of time with the zero percent interest. In many cases, you have a mere six months. After that, the APR rate increases, and it could even go up higher than your other credit cards. This means that once you transfer the balance to the card with the zero percent interest rate, you have to be disciplined enough to pay it off by the time the offer ends. Otherwise, you will not end up saving any money.

If you find that you do not have the money to pay off the balance by the time the rate increases, you may be tempted to simply switch the debt to another card offering zero interest. However, this can get confusing since you will continually have to open new cards every six months to a year. In addition, opening new lines of credit this often can negatively affect your credit report, so while you may pay less in interest, your score could go down.

Finally, note that zero interest offers usually come with lots of fine print. For example, if you are late with one or two payments, the interest rate could increase since the offer will be void. In some cases, the rate could be higher than the rate on your other credit cards. If this occurs, you may be able to transfer the money back to the original card, but you will have to act fast. Plus, the typical balance transfer costs money, such as three percent of the amount you transfer which can eat into your potential savings. Therefore, you need to make sure each transfer is worth the cost, so you do not end up paying more than you expected in an effort to pay less.

Compare Your Options

Before you decide to use a balance transfer as a way to consolidate your debt, you need to consider your choices. This is just one option, and you need to ensure that it is worth the time and money you will spend doing it. If you decide that it is, then you need to start comparing the offers you have received. Compare the interest rates, deadlines on the introductory offers, and any rules you need to know. For this method to work, you have to choose the right card and play by all the rules. If you do this, the pay-off should be worth it since you will likely save lots of money in interest.

You can speak with the experienced debt counselors at DebtConsolidation.com to discuss your credit card relief options without applying for new credit or only reducing the interest rates on your debts.

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