Transferring existing credit card debt to a balance transfer card could be a great idea for a significant number of consumers with existing debt. A balance transfer card offers a 0% interest period for balances transferred from other credit cards. This period can last up to 32 months, depending on the card, which could significantly reduce your interest costs.
Of course, knowing when to obtain a balance transfer card is not an exact science. It comes down to personal circumstances. However, here are a few areas to consider, which may help you decide whether now is the right time to obtain a balance transfer credit card.
Fees
Some, but not all, balance transfer cards charge a fee when existing credit card debt is transferred. The fee can vary significantly, so it is always worth checking before opting for a particular card. Although in a large proportion of instances the fee is significantly lower than the amount of interest that would normally have been paid on existing debt over the intended balance transfer period, the difference between them may have an impact on how attractive it is to transfer the debt.
Should the difference be relatively small, the opportunity to save a substantial amount of money from having a 0% interest rate for a set period may be limited. In contrast, a large difference between the amount of interest currently being paid on existing debt and the balance transfer fee may make a balance transfer card more appealing.
Future plans
An individual’s expected spending habits may impact on whether now is the right time to obtain a balance transfer card. Many balance transfer cards only provide a 0% interest rate on debt transferred within a set period after account opening. Therefore, if an individual knows that they are likely to make a large purchase after that period, it may be worth waiting in order to transfer a larger debt to the balance transfer card.
Individuals who believe they will pay off their existing credit card balances within a short period may not benefit from a balance transfer card as much as those who are likely to take longer to repay their debt. The total interest charges for a consumer who has a debt that is paid back after six months are likely to be much lower than those of a consumer who has a debt that is paid back over two years, for example. Therefore, individuals who generally take longer to repay their credit card debt may benefit the most from a balance transfer card.
Logistics
Although the internet has made it much easier and faster to apply for a balance transfer credit card, consumers who are time-poor may be less inclined to do so. Individuals who already have a number of credit cards may also not wish to complicate their financial situation further. As a result, the potential savings from a balance transfer card will need to be higher in order for them to be persuaded to take out another credit card.
Takeaway
Personal circumstances dictate when is the right time to take out a balance transfer card. The difference between the amount of interest currently being paid on debt and the balance transfer fee could impact on the timing of the decision. Similarly, future spending plans and how quickly an individual intends to repay their debt could also determine whether a balance transfer card is a good idea at a particular time. The time it takes to obtain a card, as well as how complex an individual’s finances are, may also be deciding factors.
