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Benefits
Balance transfer credit cards can provide many benefits to individuals looking to improve their financial situation. The key benefit is that balance transfers allow cardholders to pay off existing debt at a lower interest rate, potentially saving them money in the long run. This can be especially helpful for people who are paying high interest rates on multiple cards. By transferring the balances to a new card with a lower interest rate, cardholders can save money on interest and potentially become debt free sooner. Additionally, balance transfer cards often come with additional rewards such as cash back, points, or airline miles, making them more attractive to consumers.
Downsides
While balance transfer cards can be beneficial, there are some potential downsides to consider. The most common downside is the balance transfer fee, which is a fee charged by the card issuer for transferring an existing balance. This fee is typically a percentage of the transfer amount and can range from 3-5%. Additionally, balance transfer cards often come with a lower spending limit, which can be inconvenient for cardholders who are used to having an ample spending limit. This lower spending limit is due to the fact that balance transfers are typically higher risk for card issuers, as the customer is already carrying a balance and is thus more likely to default on payments.
Credit Impact
Transferring a balance from one card to another can have an impact on your credit score. Because balance transfers involve taking on new debt, it is important to make sure that you are able to keep up with the payments. Any missed payments or late payments on a balance transfer card will negatively impact your credit score. Additionally, transferring a balance from one card to another will result in a hard inquiry on your credit report, which could lower your credit score.
Summary
In summary, balance transfer credit cards can be an attractive option for individuals looking to reduce their overall debt. However, there are some potential downsides to consider, such as the balance transfer fee and a lower spending limit. Additionally, it is important to understand the potential impact on your credit score.
Is there a downside to balance transfers? Yes, there are potential downsides to balance transfers, such as the balance transfer fee and a lower spending limit.
Do balance transfers hurt your credit? Balance transfers can have an impact on your credit score, as they involve taking on new debt and result in a hard inquiry on your credit report.
What are the benefits and drawbacks of balance transfer cards? The main benefit of balance transfer cards is that they can help cardholders save money on interest, while the main drawback is the balance transfer fee.
Is it beneficial to do a balance transfer on a credit card? It can be beneficial to do a balance transfer on a credit card if you are able to pay off the balance and keep up with payments.