by Joshua Rodriguez
These days, there has been a lot of buzz around balance transfer credit cards. There are those who support them and, those who think they are a trap! Those who support them say that they help to lower the cost of debt, ultimately saving consumers money. Those who think they are a trap, say they lure consumers into thinking one thing and then doing another. But, which side is true? Let’s dissect these cards and figure out if they are a trap or not. If not, who should use them and who should stay away from them?
What Is It About Balance Transfer Credit Cards That Causes The Debate?
There are a couple of things that set these accounts aside from all other credit cards. The first, as explained in the name is that they allow consumers to transfer balances from higher interest rate credit cards to them. Simply put, you are able to pay off that credit card that drives you nuts with a new low interest rate account! The second thing that sets them aside is the fact that they generally come with promotional interest rates. Promotional interest rates are low, often times 0% interest rates that will last for a predetermined promotional period. This may be 6 months, it could be 18 months, that’s all in the fine print. After the promotional period, consumers will need to pay the predetermined standard interest rate on balance transfers. And here is where your debate starts!
Some consumers and even professionals say that balance transfer credit cards are not a trustworthy form of lending. Why? Well, they say that they use the bait and switch technique by fooling consumers into thinking that they will pay promotional interest rates through the life of the transfer. They say that the mid-term hike of interest is a poor lending tactic. But, is that really true?
Are Balance Transfer Credit Cards Really The Bad Guy?
Are balance transfer credit cards really a trap? Do the lenders try to fool you into thinking that you will pay incredibly low interest rates when in all reality, you will have to pay horrible rates? In my opinion, NO! The truth is, when you apply for any credit card, you have to fill out an application. Within this application you will have to sign either verbally, electronically or in person, that you agree to the terms and conditions of the loan! The lender is required to disclose all interest rates current or future within these terms. So, this means that consumers know exactly what is going to happen, well before it happens! They know what their promotional interest rate will be, how long it will last and what interest rate they will need to pay once it expires.
Now, the other piece of this debate is that when the interest rate goes up, it goes up to unreasonable numbers. Personally, I don’t think this is the case either. The fact of the matter is, to qualify for a balance transfer credit card, you will need to have good to excellent credit. Credit cards designed for these types of credit scores generally come with the lowest interest rate on the market. No matter if they offer rewards, balance transfers or any other benefits, the interest rates will be competitive or, you will not want to apply for the card! Finding a good balance transfer credit card simply takes a bit of comparison! I’ll get into that a bit later.
Who Should Use Balance Transfer Credit Cards And Who Shouldn’t!
Throughout the past several years, I have worked with hundreds of clients who were dealing with credit card debt. Some of them were going through a financial hardship, some of them just needed a little bit of budgeting help, some just wanted lower interest rates. One thing that many had in common was the interest shared in balance transfer credit cards. They were looked at as ways to consolidate multiple debts into one easy to manage, low interest rate account. Here is how I would address each situation:
- Balance Transfers For Consumers Dealing With Financial Hardships: The truth is, to qualify for these accounts, you will need to have a good credit score and debt to income ratio. If you are honestly facing a financial hardship, chances are, you will not be approved. However, there are tons of other options out there for consumers in dealing with overwhelming debt. Options like hardship programs with your lender, debt consolidation and debt settlement. This all depends on the severity of your hardship and your goals with your debts. However, you should really consider these other options.
- Balance Transfers For Consumers Who Need Budgeting Help: In most cases, balance transfer credit cards are a great option for consumers who simply need budgeting help. This depends on your credit score and ability to pay future loans. It also depends on whether or not there is an offer on the market that could beat your current credit cards. However, if you choose this option, I would also seek assistance in getting your budget in order. You never want to miss a payment, it could cause default rates!
- Balance Transfers For Consumers Who Just Want Lower Rates: This is also a good option for you. However, if you’ve made payments on time every time and, you keep your balance below 50% of your credit limit, you should call your current lender first. They will often times reduce your rate to meet the offer and you can avoid the hassle! The truth is, most businesses enjoy keeping their most loyal clients.
Things To Compare When Shopping Balance Transfer Credit Cards
There are several factors that you will want to compare as you shop for the balance transfer credit card that fits you. Here is a list of them and why you should compare them:
#1: Lenders – The first factor that you will need to compare is the lender that issues the credit card. As in any industry, you will find that some lenders are trusted far more than others. When entrusting a lender with an account that could hold the key to your financial stability, you want to make sure that you choose a worthy lender. One that will be able to answer your questions and address any and all concerns you may have.
#2: Interest Rates – Once you find a lender or two that you know and trust, it’s time to look into the interest rates! I know that promotional interest rates are incredibly exciting and, you should compare them. However, you shouldn’t allow yourself to get consumed by the concept of savings either! Keep in mind, there are other rates that you will eventually pay. Always compare standard, cash advance and default interest rates as well. These are the rates that count in the long run!
#3: Fees – Finally, it’s time to compare the fees that you may be charged for using the card. Most credit cards will charge annual, cash advance, foreign transaction, returned check fees and more! You should compare all of these. Also, when it comes to balance transfer credit cards, you will most likely come across a balance transfer fee. These fees are generally 3% to 5% of the amount being transferred. Make sure to calculate the transfer fee when calculating your savings!
Balance transfer credit cards really aren’t all that bad. If you ask me, they are a great financial tool! But, if you use a hammer the wrong way, you might get hurt. Well, if you use any credit card the wrong way, you will generally see negative side effects. However, before choosing this option or any other, I strongly suggest seeking the advise of a professional. You can even go to your local bank and discuss your options with the banker you know and trust!
About The Author – Joshua Rodriguez
This article was proudly written by Joshua Rodriguez. Throughout his entire working career, he focused heavily on topics of credit cards, credit card debt and budgeting. Through his work, he has helped several consumers finally realize financial stability. Join the conversation with Joshua on Google+. Also, enjoy the first part of a series he is publishing titled “Balance Transfer Credit Cards – A 7 Step Guide To Understanding This Option”!