A Balance Transfer can be a great tool to reduce debt when you seeking or have obtained an unsecured business line of credit. It can also be problematic if it’s done the wrong way. A poorly planned balance transfer can send you up the proverbial creek without a paddle.
A balance transfer is nothing more than moving money from one place to another. You can do it any time but most often it’s done when you receive a new unsecured business line of credit. So, if you have credit cards with high interest rates, it often makes sense to transfer to a low interest rate card, right?
Not Necessarily. It all depends on the details.
What’s it really going to Cost?
Figure the exact amount it will cost and compare offers. You’re just looking for lowest interest rates for longest period and the lowest fees. Let’s do the math, a $10,000 balance transfer with a 0% APR for 3-months and 3% balance transfer fee would actually cost you $300. That’s like getting a 12% APR and not really a very good deal. That same balance transfer at 0% for 1-year could be a lot better on your budget. Read the fine print; get the transfer with the lowest rate and longest term.
A few years ago a caveman could have obtained a credit card. However, the last few years have forced the financial institutions to restrict lending to better qualified credit risks. So in order to get the best balance transfer offers, build up your credit score. Payment history can count for almost a third of your credit score. Another third is utilization, or balances vs. limits. If you have $10,000 in credit limits and are using $7,500 of that amount, it’s hurting your credit score. Most lenders will prefer utilization below 30%.
What exactly IS the offer?
Do you need multiple purchases to keep the low rate? Do purchases even affect your balance transfer? Will offer requirements affect your ability to save? If your credit isn’t terrific, does the offer still apply? Creditors are quick to offer all the bells and whistles up front but rarely disclose the real facts except in the fine print. Due diligence is called for whenever you plan to accept offers, read the fine print.
What exactly is that check you received with your last statement? Are you sure it’s not just a cash advance check? Don’t confuse cash advances with balance transfers. Penalties are bigger than ever now that credit is tight. Cross the line and you will pay a hefty price. Late payments can mean a default interest rate. Always pay on time and never go over your limit or the fees could cost you all you were trying to save.
The truth is, balance transfer credit cards are great options in some circumstances but are not always the best option. There is no financial product that is a one size fits all. Consider the offers carefully, Do the math, and decide if that balance transfer is your best option!