Getting your first credit card is a completely exhilarating feeling, when you think about all the new opportunities available to you. Not only do you have a permanent line of credit just one card swipe away, but you can take advantage of interest-free instalment schemes for larger purchases as well as amazing credit card-only special offers and deals. But one of the biggest risks of credit cards is inadvertently falling into credit card debt - which is far easier than you might think. It just takes a couple of unpaid bills to find yourself drowning in interest and late payment fees. If you ever find yourself in a mountain of credit card debt, you might feel like there’s no way out. In times like these, balance transfer credit cards might seem like a godsend, taking care of all your card settlement woes.
What are balance transfer cards?
A balance transfer credit card is a service offered by credit card companies to allow people with large outstanding amounts on their credit cards, to move the entirety of the unpaid balance from their current card to another card. How it works is that your new credit card company will settle your pending bill at your old credit card company and take care of the old credit card settlement, and you will have to work with your new credit card company to pay off this amount.
Benefits of balance transfer programs for credit cards
Balance transfer programs for credit cards are one of the most popular methods among people looking to get out of credit card debt, due to their numerous benefits.
Lower Interest Rates
You can enjoy lower interest rates offered by other credit card companies, thereby reducing the weight of the amount you owe by way of those unpaid credit bills. You can not only save money but you might even be able to get out of debt far quicker.
You can also take advantage of better perks offered by other companies, such as cashback schemes for everyday purchases, more attractive credit card offers etc.
Consolidate Your Debt
If you have multiple maxed-out credit cards with pending bills, you can consolidate them all to one company and work out a better rate with the new company for the total amount. This also means you only have to make one payment per month to one company, rather than multiple payments to various companies.
Cutting ties with your current credit card company, who has probably been hounding you about the unpaid bills, and starting afresh with a good relationship with a new company might seem enticing. Not only will you be treated very well but you can also save a lot of money. However, the reality is that transferring your debt from one location to another doesn’t practically change many aspects of your life. You still have the entire outstanding amount to be paid off, with a new interest rate and possibly a plethora of other charges and service fees added on, such as transfer fees etc.
Risks of Balance Transfer Programs for Credit Cards
There are a few risks associated with balance transfer programs for credit cards.
Higher Overall Repayment Value
Even though your new credit card company offers a better interest rate, it might be just for a set time period after which the standard interest rates would kick in. All things considered, you might actually end up paying more money than if you had stayed with your current service provider, when you consider the transfer and settlement fees and the interest rates after the grace period, surcharges for late payments etc.
The new companies require you to settle your bill within a stipulated period of time, failing which you will most likely no longer be entitled to the preferential interest rates offered to you.
Potential Nullification of Perks
If you unknowingly violate your agreement in any way, you may find that the benefits offered you might be nullified. Reading that lengthy terms and conditions document is extremely important in these situations
Snowballing into Further Debt
If you are deep in credit card debt, it is evident that you have practised poor credit card habits. Moving your pending amount to a new credit card with better benefits is not going to change that; in fact, these attractive perks might tempt you into using your credit card even more and accumulating further debt.
All things considered, balance transfer programs for credit cards are simply one tool of managing your piled-up credit card debt. There are many other options available to you; OnCredit.lk offers very attractive short-term loans which you could use for card settlement. Similarly, falling into credit card debt does not mean the end of the world - but just one hiccup in your personal finance journey.