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Pros and Cons of a Credit Card Balance Transfer

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A credit card balance transfer involves moving one credit card balance to another credit card, usually one with a lower interest rate. Making a balance transfer isn’t a simple decision. That’s because the terms and conditions of a balance transfer are a little more complex. Here are some pros and cons of doing a balance transfer.

Pros of a Balance Transfer

You can take advantage of a lower credit card interest rate, especially if your credit card issuer has decided to raise your interest rate. If you have a credit card with a lower balance transfer interest rate, transferring a higher interest rate balance can save money on interest charges and allow you to repay the balance sooner.

You can move your balance to a credit card with better terms. If your current credit card has bad terms – high fees, a short grace period – you might move your balance to a better credit card.

You can consolidate your credit card debt, leaving yourself with fewer credit card bills to pay. Moving your credit card balances to a single credit card (given it has a high enough credit limit) can eliminate the hassle of making multiple credit card payments to several different credit cards. It’s easier to pay off the balance of one credit card than to pay off multiple balances.

Cons of a Balance Transfer

You could end up with a higher interest rate if you don't qualify for a promotional interest rate. Most credit cards have a higher interest rate for balance transfers than for purchases. Not everyone qualifies for the promotional interest rate. You typically must have an excellent credit score to get a low interest rate balance transfer offer. Otherwise, you’ll only qualify for the regular (higher) balance transfer interest rate.

Balance transfers can get expensive considering the balance transfer fee and the annual fee if the new credit card has one. Balance transfers aren’t free. You’ll almost always pay a balance transfer fee that’s usually a percentage of the balance you’re transferring. Your new credit card may charge an annual fee that makes the total balance transfer cost more.

A balance transfer could hurt your credit score. Your credit score takes a hit anytime you have a credit card with a balance that’s above 30% of the credit limit. If you move your credit card balance to a credit card that doesn’t have enough available credit, your credit score could drop.

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