Balance transfers are a term almost every cardholder comes across. Whether it be during the time of application, being advertised as a benefit or as a promotional offer being pushed their way. While some cardholders may be well versed with the term, first time cardholders might find this term vague and confusing. Balance transfers are a way of managing overdue credit card balances accrued on other bank credit cards by transferring them to a new credit card. Doing so would grant the cardholder the ability to pay off the balance in installments over specific tenures at interest rates that are much lower. As a result, it is a great way of clearing out dues before compounding interest rates spiral the debt out of control.
But a balance transfer plan can do much more than stem the debt from overflowing. Below are ways in which a balance transfer enabled credit card can help a cardholder.
- Opens up more room for cardholder’s money: The balance transfer plans can work for people who have debt that they can afford to pay off. Debt transferred onto balance transfer cards don’t accrue high rates of interest for the tenure chosen. This allows cardholders to make minimum monthly payments on the debt and gives them more room with their cash to spend on other expenses. The low rates of interest mean that even though minimum monthly payments are being made, the debt will still get serviced. The money freed up can be used on more productive avenues such as investments or deposits into a high yield savings account. One thing to note when using this strategy is that the balance of the debt should be cleared as soon as possible once the balance transfer tenure expires. Balance transfer plans revert to original interest rates when the tenure is up and failing to clear the balance will begin accruing interest at higher rates undoing all the benefits gained from the strategy in the first place.
- Other Benefits: Balance transfer cards also come with a slew of ancillary benefits that can help a cardholder financially. Benefits include complimentary travel insurance policies and rental car insurance policies. They help save the cardholder the added expense of purchasing these policies separately. The balance transfer cards also come with a credit dashboard. This dashboard allows cardholders to monitor their credit score with every payment that they make and is a very helpful tool for those who have debts and have missed a few payments in the past.
- Protect credit scores: Using a credit card bill payment, cardholders can ensure they repair some of the damage caused to their credit score when they accrued the loan in the first place. The cards allow cardholders to pay off the debt quicker and easier through lower interest rates and can bring up the affected credit rating of the cardholder.
Things to look out for:
- They should be opted for if they have low transfer fees. Some cards might charge upwards of 5% for transferring balances which can eat away the benefits of having lower interest rates.
- Ancillary benefits such as complimentary insurance policies are not comprehensive and do not cover a wide range of claims.