Useful Tips when is a credit card balance transfer a bad idea

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Generally, balance transfer credit cards can help a lot in managing your debt and allowing you to pay it off. But as with all things, there are always exceptions. Here are some of them.

When you're applying for a mortgage or any other major loan, hold off that balance transfer or do it ahead of time. Balance transfer credit cards entails the creation of new accounts, and new accounts result to a dip in your credit score. Though the dip in the score is minimal–a couple of points–a decrease is still a decrease. Especially when applying for mortgage, you would need every point that you can get from your credit score. Your credit standing can result to a decrease or increase in the interest rates that you pay. The good thing is the credit score dip is temporary. If you pay your dues on time and manage to lessen or eliminate your balance, your credit score is sure to improve. The only thing is, it will take a couple of months to bring your credit score back to where it was before. The problem here is that of timing.

It's also a bad idea to use these cards as means of extending your credit. Though you can certainly do so, that would be not using balance transfers the smart way. Balance transfer cards offer a way of paying your debts with lower interest and your main goal should be to eradicate your balance and save through them. You shouldn't get the lower interest just because you would like the extra credit at a lower rate.

Also make sure that you can pay off the balance in the time frame of the balance transfer's offer. Whether it's 6 months or 18 months, you should be quite confident that you can cover all your old balance by that time. This is because the offer of balance transfer cards are good only for the time period set and if you pay your dues on time. The card company can raise your rates after the introductory period, so you should be aware of how much they will charge you. If you're not careful, you may end up paying your old and new credit balance under a higher interest rate compared to your old card.

If you're also thinking that you can just keep doing transfers after each introductory rate expires, then think again. Some offers restrict you from doing a balance transfer after the special rate ends. And even if you're allowed to, you can't be sure that your next application for a balance transfer card would be approved. Aside from that, you can't also guarantee that the same low rates will be available in the future. You may end up paying balances at a higher interest rate than you expected.

These are some scenarios where getting a balance transfer would be a bad financial move. You should always keep in mind that your aim is to eliminate the debt and improve your credit score. You should use  transfer credit cards to help you in that goal and not hinder it.
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