The Realities of Credit Card Balance Transfer…not always as wonderful as they seem

The Realities of Credit Card Balance Transfer…not always as wonderful as they seem
January 24, 2023 Ridgedale Marketing
Payoff Credit Card Debit

The Holidays are over and like all other years, you may have splurged, and now the bills are streaming in.

Is a credit card balance transfer a good option for you?

Joanne B. is a mother of two and an executive at an e-commerce company. She felt she needed quality time with the family so off they went on a holiday vacation. The trip costs her $4500. Now she wants to transfer her balance to a credit card with a lower interest rate to save money.

A balance transfer (offer) could be a good idea for Joanne. If she has a high-interest credit card rate and can’t pay the $4500 off right away. It can provide some time to pay down that debt and avoid more interest charges while you do it. A balance transfer could also be a good idea if you are juggling high interest debt across multiple cards.

Sounds like a plan. BUT do your research and know what fees and/or restrictions are associated with that transfer, those fees might take you by surprise!

Potential Pitfalls

Time limit. When opening a new credit card, often the terms will require the cardholder to complete the balance transfer within a certain time (usually in the first 3 – 6 months) to receive the promotional rate. The day after that window closes, regular high interest rates begin. Now, you are back where you started with a high interest rate!

In addition, there will be a time limit to the promotional interest rate. If you can budget to pay off the debt within that promotional period, then that is a win. If you do not pay in full within that promotional period, then what interest rate will you be paying? Credit cards are running between 16.24 and 29.00% variable annual percentage rate.

Transfer Fee. A balance transfer fee is a fee that is charged when you transfer credit card debt from one card to another. It’s usually around 3% to 5% of the total amount you transfer, typically with a minimum fee of a few dollars.

If you transfer say $5,000 and the credit card company is asking for a 4% fee, that will cost you $200. Where is the “break-even” on that $200?

Who gets the 0% offer? Check your credit score. You may not qualify for a particular balance transfer offer if your credit score does not meet that card’s requirement.

Be sure to do your research, read the fine print of any offer or application. If you feel that you need help with knowing the benefits of an offer, or any credit cards, our loan team can help you. We can review the offer and compare it to what we offer.

The Ridgedale FCU Visa credit card offers a fixed rate, and $0 fees on balance transfers.