Pros and Cons of Consolidating Debt with a Balance Transfer
Thinking of consolidating your debt with a balance transfer? Here are a few things to keep in mind as you weigh your options:
Pros
Low interest rates are available
Lots of credit card companies are looking to entice new borrowers by offering great introductory offers, including low (or even no) interest for the first few months after the account is opened.
Flexible repayment
Since you’re transferring your debts to a new credit card and not a loan, there won’t be a fixed monthly payment. As long as you cover the minimum due each month you’ll be fine.
Cons
Low rates are usually temporary
The best credit card interest rates are usually just introductory rates – meaning they don’t last. If you don’t pay off the debt before the end of the introductory period, you might be in trouble once the balloons back up.
Transfer fees
It usually costs money to transfer a balance onto a new card. Typically, a balance transfer fee will cost you 3-5 percent of the debt being transferred. A five percent balance transfer fee on a $2,000 debt would cost you $100, for example.
No end in sight
Transferring your balances to a card with great terms can help you save money, but only if you have a clear, committed plan. If you fall into the trap of just paying the minimum or even continuing to transfer your debts to other cards, you may never make any actual progress.
