Credit card balance transfer may save you money
In today's fast paced-world, people are constantly trading up for fancier cars, nicer homes, and better credit cards. Yes, credit cards. It has become very common for consumers to remain on the lookout for the latest credit card offer that promises higher credit limits, lower annual percentage rates, and 0 percent balance transfer offers. For many borrowers, the move to a new credit card is beneficial. But before you make the jump and apply for a credit card that seems better than the card you have now, there are a few things you will want to investigate. You should find out how multiple inquiries for credit will impact your credit score and if the APR that applies to purchases and/or balance transfers after the introductory grace period still is a good deal.
Switching to a credit card that will help you save money on interest charges and fees makes economic sense. After all, why get hit in the wallet when you don't have to? The decision to switch credit cards seems especially smart when you consider that for most credit cards the minimum monthly payment is so low that it barely covers the interest charges trimming your outstanding balance by only a few dollars from month to month. What you want to look for is a credit card that offers a lower interest rate, or APR, than the one you are currently using. This method of debt consolidation can significantly lower monthly interest payments.
However, you should keep in mind that each time you apply for a new credit card an inquiry from that particular creditor goes on to your credit file -- whether you receive the credit or not. These numerous inquiries by different creditors can hurt your credit score, as multiple applications for unsecured credit suggest you are desperate for money. In turn, lenders may not give you their best rate. Any account (whether open or closed) remains on your credit file for at least seven years.
Finally, switching credit cards and closing accounts immediately after the change-over also impacts your credit score. You may want to avoid closing old accounts right away, unless you are worried about being responsible with these credit lines. Older accounts indicate an ongoing credit relationship and help maintain your credit score.
Meanwhile, when considering if you should take advantage of a 0 percent balance transfer offer, think about the length of time that you will have before the "normal" APR applies to that balance. Will you will be able to pay that balance in full before the grace period ends? Also, if you are unable to pay off the balance before the end of the grace period, you should consider whether the new APR that kicks in will be a significant savings from the card from which you are considering transferring balances.
To make sure that you are getting the best deal, you should conduct a thorough review of available credit cards before making a final decision on the lender to which you choose to apply. That way, you will know up front exactly what you are getting and whether you will actually cut costs, leaving very little possibility of surprises.
Switching credit cards can be effective for consumers who are looking to manage their credit card debt and eventually become debt free. For the disciplined borrower, this technique can very effectively help you combat your debt load. It is prudent, however, to remember that your credit score can be negatively impacted by switching balances too often and generating multiple credit bureau inquiries, as well as by the opening of new accounts while simultaneously closing others.
Published: June 3, 2006
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