Understanding How Balance Transfers Work
When you make the decision to acquire a new credit card, many of these companies will offer you a balance transfer from an existing card or collection account that you have with another company. This practice is one that many people find beneficial as they reach an agreement with a new company. Depending upon your situation, this opportunity may be one you wish to utilize. Before you do, it is important for you to gain a better understanding of this process and what it could mean for you.
What Are Balance Transfers?
A balance transfer is the process by which you can take the remaining balance you owe on an existing credit card and move it to a newly issued card from another provider. Many companies like to offer this service to a potential new customer as a way of making the decision to apply more advantageous. This advantage comes from the reduced interest rate that the company offers a person on the transferred balance. These new cards will, in many instances, have a temporarily lowered rate of interest that will make the amount that you owe on whatever amount you have outstanding lower than it would be otherwise.
There are ways in which a balance transfer onto a new credit card could prove to be useful for you. The temporarily reduced interest rate, known as a 'teaser rate', will enable you to save money on anything that you are able to pay off during this period. For those who need a little more time to pay off currently outstanding obligations, this can give you more time to make those payments without adding any further charges to the balance.
While balance transfers can help you for a certain period of time, it is important for you to consider what the long term impact of this will be. The teaser rate is only temporary, and it will eventually be replaced by a permanently higher interest rate. Be sure that you know what this rate will be, and whether or not it will prove too high for you in the long run. Take note of the transaction fee that will come with the transfer, an amount that can often be around 2-3% of the total balance. Additionally, the new card could have a minimum monthly payment attached to the balance, an amount that you should know before you reach an agreement.
Qualifying for Transfers
In many cases, eligibility for a balance transfer upon acquiring a new credit card is limited. Companies that provide these will often limit their availability to individuals with an excellent prior credit history in the hopes of luring in customers who have a strong history of timely payments. Other balance transfer options are available for those who's credit history is not as spotless, but often the best offers on the market in this area will require you to have a great history of paying off credit card debt.
The possibility of a balance transfer onto a new credit card can be an appealing one for many, but understanding how balance transfers work before agreeing to one is important. You should know that the outstanding obligation does not go away, but is just moved onto your new card. This process can have an impact on you in a number ways, and these can prove to be positive or potentially negative to you over time. If you still decide to go this route, your eligibility will often depend upon having a strong credit history. Like anything else, balance transfers are a tool that may be of use to you if exercised properly.
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