Say you find yourself in a situation where you are facing debt and suddenly stumbled upon the idea of doing a balance transfer to lower the interest rate. There are some best balance transfer cards available in the market, some of which even offer you 0% interest for 18 months.
Let us look at some of the drawbacks of balance transfer:
If on transferring your debt you manage to pay it off, then the idea was a good one, and it worked out for your benefit. But if you manage to get a balance transfer done, and your debt remains, then your situation just got worse. You will soon, as you embark on your journey with your new credit card realize that you have made a huge mistake if you didn’t realize what damage the transfer fee can do to your already existing debt. Most of the best balance transfer cards charge a transfer fee of 3% bringing up your balance every time you move to a new card and putting you in more debt rather than helping you get out of it. If you do the math, you will figure out that the more debt you move, the more you end up paying. There is also the issue of your credit score that you need to keep in mind when you do a balance transfer. If you pay off your debt quickly, then you will see an increase in your credit score. But if you keep on moving from card to card without really paying off your debt, then your credit score will suffer. If this happens, you will not be approved for getting any 0% card. Closing the card you remove the debt from can also hurt your credit score.
A balance transfer is a very tricky business and if not done correctly can very well end up putting you in even deeper debt. So, it is necessary that you understand balance transfer well and then move forward.