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Balance transfers are tricky issuers for some

[Wednesday, November 3rd, 2010]

Balance transfers are for those who want to get out of credit debt much more quickly and are a good way to reduce the balance on the cards. But it could prove to be a tricky issue for some individuals.

Most cards offer a 0% introductory offer rates and most often consumers would use this opportunity while doing balance transfers and thereby save on interest rates and save some money in the bargain. However, consumers would be careful not to add any debt on their existing balances for a period of one year and thereby clearing off their dues quickly. If consumers maintain this discipline by not adding on debts and clearing off the existing balance by paying an extra amount to the lender each month, the balances would not only be reduced but the credit card spending would come down as well.

In some cases the balance could be transferred to another card (with a good introductory rate) and the card might also offer some rewards, but this comes with a catch. The offers are always tempting like for instance the rewards are offered to customers on additional spends thereby negating the whole purpose of saving money on interest. The addition in debt could be the worst idea for someone who would be struggling to get out of debt in the first place.

As per reports, not all balance transfer offers are beneficial to the customers as the lender charges a fee to do the balance transfers. The fee is normally a percentage of the total debt in the cardholder`s account but it could in some cases be much higher than the normal fee that the customer would have paid to the previous issuer (which would have been standard interest rates).

Additionally, balance transfers could ruin a person`s credit score rating as transferring the debt in the card from one issuer to another might lower the credit score especially if the new account has a low credit limit when compared to the older card. This is due to the fact that there is a direct correlation between an individual`s credit utilization ratio and a huge percentage of the credit rating would be based on that. In other words, the more the debt one carries as well as the credit line that the individual is allowed would be viewed in a negative manner.

Hence one has to make an informed decision before making any major decision with regard to finances especially balance transfers and one should consider all the consequences of such transactions.

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