Balance transfer checks can be a great way to consolidate balances and lower the overall interest rate on outstanding debt. However, most financial institutions will delay the processing of a balance transfer check by placing a hold on the balance until the check clears.
There are many financial tools available for debt management but balance transfer checks offer a convenient and quick way to move a balance with a high interest rate to a credit card with a lower rate. It is often possible to save hundreds of dollars per month by transferring a balance to a new credit card. There are some considerations before making a transfer which could affect the decision making process.
Balance transfer checks are not guaranteed to clear when presented to the originator, the bank or credit union willing to issue the check. There is also the possibility of a balance transfer fee being imposed which could make this option less appealing. And finally, the lower interest rate of the balance transfer check is often for a limited time, usually a period of between six and twelve months, which may not be enough time to pay off the transferred balance.
If you have an outstanding balance of $10,000 at %8.9 percent and then transfer it to a new credit card at 0% for six months with a balance transfer fee of 4% then that would appear to be a great deal. However, it is 4% for six months which is 8% annualized. If you are paying 8.9% already then the transfer isn't really doing much. If you can make the transfer for twelve months then it really is 4%. Needless to say, it is very important to read and fully understand the terms and conditions of any balance transfer checks which are used by an account holder.
Balance transfer checks will often come in the mail but they can also be obtained directly by calling the bank or credit union. If you call, they will usually be able to conduct the balance transfer over the phone which will obviate the need for checks. This does however limit the usefulness of the balance transfer as checks could be used to not only pay off existing balances but also to pay for car repairs or other necessities.
Keep in mind that once the low rate period is over the balance will revert to the standard rate of the credit card at the new financial institution. If the new rate is going to be 16.9% and the old rate was 8.9% then you could actually be worse off then before the balance transfer. With a lower monthly payment due to the lower interest rate, card holders often make the mistake of racking up additional debt which also has a detrimental financial effect in the long run.
Balance transfer checks can be the most efficient and effective way to get ones financial house in order. They offer a clear and simple way to consolidate numerous higher interest rate credit cards as well as being able to pay for other goods and services. There are important financial considerations and terms attached to these types of checks so as always do your homework and ask questions if you are unsure that a balance transfer check is right for you.