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What are the benefits of a balance transfer?
One of the biggest benefits of a balance transfer is that you can take advantage of promotional introductory offers. A common promotional offer is a 0% interest period when you sign up. By taking advantage of a 12-month, 0% promotional offer, you can focus on paying off your principal debt without racking up any more interest for a whole year.
Some people also prefer having all their debts in one place and under one repayment. You can use a balance transfer card to transfer balances from multiple cards as long as the total amount you’re transferring is less than the new limit. The benefits of this are that you’ll only have one debt to keep track of, and one repayment to stay on top of each month.
Applying and getting accepted for a balance transfer card may help your credit score by increasing your overall limit and by mixing up the types of credit you’re using. A healthy score is made up of a variety of different types of credit.
Why might I not want a balance transfer?
As with any form of credit, there are potential downsides to balance transfer cards.
Usually, balance transfer cards come with a fee. You’ll need to make sure that when you calculate your possible savings with the new balance transfer card, you have factored in the fee (which is separate to the interest) and ensure that it’s still going to save you money overall. There are some cards that have a promotional offer that waives the fee for the first year, but this is not the case for all cards, so make sure you choose the right card for you.
You can’t transfer your old balance to a new balance transfer card if both the debts are with the same lender. So, if you already have a credit card with BMO, you won’t be able to take advantage of their balance transfer offer, but you could try with another lender.
The benefits of a balance transfer could be time sensitive. If you want to make the most of a 0% introductory offer, you’ll need to make sure you pay off the whole balance by the end of the intro offer, otherwise you will be charged interest on whatever balance remains. It’s worth keeping in mind that the APRs for balance transfer cards can go up significantly once the promotional period has ended.
A short-term downside is that – as with any credit application – your score will go down after the hard search has been performed, but this dip will be temporary and as long as you keep up with your payments, it should actually make your score go up over time.
Who can get a balance transfer?
Balance transfers are usually available to those with a good score or above. If your score needs some work, make sure you do that before applying for a balance transfer card, as a hard search can make your score go down temporarily.
It’s also important to remember that you will not be able to transfer your balance to a new card if it’s with the same lender who holds your original debt.
The bottom line
As with any form of credit, a balance transfer card has pros and cons depending on your financial situation. Make sure you take the time to figure out exactly what you need from a new card and use the ‘Chances of Approval’ feature on Credit Karma, to give you a better idea of whether you’ll be accepted before you even make the application.