Credit card companies send out billions of balance transfer checks to their customers each year in the hopes that they will be used to move balances to a new credit card.
But when should you use a balance transfer and when should you avoid them? Let’s look at a few scenarios.
1.There is no promotional rate. Promotional rates are what make balance transfers good for consumers. By using a balance transfer at a promotional rate of 0-6% per year, you can reduce the total interest paid on your balances. Don’t use a balance transfer unless the rate is much, much lower than your current APR on an existing balance.
2.Fees are high. Never use a balance transfer if the fees are greater than the savings from lower interest rates. A balance transfer with a 5% fee and 4.99% annual rate is not much different than a balance on a card at 9.99% per year. Always be sure to read the fine print and include the transfer fee in the total cost of the transfer.
3.You want the credit score boost. You can use balance transfers to temporarily boost your credit score. If you have a card with a high utilization rate (greater than 30%), moving the balance to a card with a low utilization rate can help improve your credit score. Try to keep all your credit accounts below 30% for the best credit score possible.
4.You need to float a short-term purchase. Balance transfers can be a great way to finance new furniture, a one-time expense, or an emergency car repair over the next 12-18 months. Use low-cost balance transfers as an inexpensive form of financing when you need to make a purchase now and can afford to pay off the transfer before your rates rise.