Debts can often be increasingly expensive because of the interest-bearing element within debt that often considerably increase the finance cost of drawing the respective loans. However, there are some smart and efficient ways in which debt-holders can reduce their interest costs through effective strategies. Balance Transfer tends to be one of them. You’re probably wondering, what is a balance transfer, and do I need one? We discuss that in this article.
Definition
A balance transfer is an option that allows the debt holder to move and transfer debt from one credit card account to another. The main reason that people opt for balance transfers is the fact that it allows people to move high-interest bearing debt to a credit card, which normally has a 0% APR. Therefore, this can be a real money-saver for companies in most cases.
In most cases, it can be seen that balance transfer is considered as a type of credit card transaction in which debt is moved from one account to another. As a matter of fact, it can be seen that for those debt holders who are paying down the high-interest bearing rate of debt, conducting a balance transfer can positively impact their interest payments.
Advantages of Balance Transfers for Debtholders
As mentioned earlier, Balance Transfer can prove to be extremely worthwhile for you because it helps them to effectively manage your finance costs, as well as their cash flows. This is because of the fact that it helps you convert their interest-bearing loans to an account that would not charge interest (0% APR), and hence, this can be increasingly important and productive for you since it would dramatically reduce your interest and finance costs.
In the same manner, it can also be seen that in cases where you are successfully able to manage to bring down your interest payments, you can afford to spend the money elsewhere. The opportunity cost involved in this regard is massive for you, and you might need to curtail some important expenses if you are unable to execute the balance transfer in due time.
However, perhaps the most perturbing issue is the fact that it might adversely impact your credit rating if you are unable to pay the principal and the interest payment in due time. If you have an option of converting this instrument into an interest-free arrangement, or even a lower interest-bearing instrument, it is a no-brainer.
Conclusion
Despite the fact that Balance Transfers do involve a certain finance cost that would be borne by the investor, yet it can be seen that the advantages of Balance Transfers clearly outweigh the associated costs. However, it can be seen that it is always more beneficial to opt for Balance Transfers earlier on in the arrangement, as compared to later years. This is simply because of the reason that towards the end of the debt arrangement, the interest rate, and the balance transfer cost might be at par. Regardless of this, a balance transfer can be considered as one of the most useful options that debtholders have and should be utilized if the option is available.
