Should you opt for Credit Card Balance Transfers?
Should you opt for Credit Card Balance Transfers?
This is an age of convenience, particularly, seamless convenience offered by service providers and businesses to their much cherished customers. When I speak of ‘seamless’, I speak of varied products and services that might originate with say, Provider (A), but in the long course of its commitment duration or tenure, might move from the original provider to say, Provider (B), with the attached promise of lower interest rates, service charges or less paperwork, tilting that deal in the latter’s favor. The current business world isn’t about enduring loyalties!
‘Is Saving Money a Crime Now’?
No. Benjamin Franklin’s iconic quote ‘A Penny Saved is a Penny Earned’ is right on the money, if you will. Let’s take the case of Credit Card Balance Transfers- a simplified transfer of the balance or the money you owe to a credit card company, from your original provider to a new account that you hold at another credit card company. In theory, this seems a good arrangement, exploiting lower interest rates and better perks and all that. However, as is always the case, there is a dark side to the force.
Negatives of Credit Card Balance Transfer
1) Welcome More Debt
It’s natural human tendency to muck up, learn an important life lesson, clear up the problem, enjoy a period of relative peace and then, muck up again. While this may not necessarily define a financially responsible individual, an irresponsible one could take the newfound freedom that comes from the new interest rate plan to relapse back into his old destructive spending habits. Remember, this new credit card account is still the same old deal- you pay for what you spend!
2) What, It’s a limited time offer?
Banks and other financial institutions offer discounts and offers on credit cards every other day, in line with a big holiday or festival. Ensure that you don’t miss the deadline for signing up, thereby moving from one credit card provider to another, without the attached incentive.
3) Two is NOT Better than One
After moving your credit card balance, instincts should guide you to close the earlier account. However, some people choose to keep the first account active thereby playing a risky game of ‘riding on two boats’. Why would you do that? Stick to the basic plan- eliminate the first card ASAP!
4) Impact on CIBIL Scores
Its common knowledge, applying for a new credit card while closing an older card at less than satisfactory conditions will impact your credit scores. If your credit scores are already shaky, maybe the move isn’t such an inspired idea.
Positives of Credit Card Balance Transfers
However, the other side of the coin is very encouraging, especially for those who are committed to correcting their off-course financial trajectories or those who plan to start afresh. The positive highlights are:
1) Money is Saved
Its simple physics, lower interest rates- lesser you pay. However, the associated charges and requirements could easily negate this fundamental advantage. Before you commit, do the maths!
2) Helps You Get out of Debt Sooner
This would be a primary extension of the first point, money saved is money made, right? By saving money on repayments, fresh avenues for funds can be explored, the inherent pressures that accompany a mountain of credit card debt could be avoided and an extended measure of control can be exerted in your repayment quest. Then there is peace of mind, of course.
3) Enjoy Better Terms & Perks
One of the principal advantages of credit card balance transfer is that a whole new ecosystem opens before you with new perks, terms and advantages to exploit. Your new credit card company will let you enjoy certain advantages that weren’t available with your former provider- precisely the reasons that prompted your move in the first place.
4) Zero Security Required
Unlike say, a home loan transfer, no collateral or security is required to legitimize the shift. In the financial world, credit card balance transfer is one of the simplest options available to the customer.
Conclusion: Looks like an even match, and thus, the summation as deduced by the most shrewd credit card owner- change is good, but sometimes, staying put works well too. Understand your own specific requirements and consult your own situation before either jumping ship or gearing up for the long haul. When it comes to credit cards, the world is still figuring out the answers that fit a universal audience, perfectly.
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This is a guest post from Hari Bathala and not the views of myinvestmentideas.com team
Hari Bathala is a seasoned writer of articles and blogs relating to the banking and investment sectors. A writer by heart, Hari’s acumen in these topics is honed by his long professional career that explicitly dealt with these core topics. A brilliant guitarist, a stamp collector, and avid follower of all things World War-2, Hari is currently working with BankBazaar.com in their Content Strategy Group. He can be reached at email@example.com