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Overview
Debt management is something that many Americans are learning to deal with on a daily basis. One of the aspects of debt management is handling a credit card balance transfer. Credit card companies offer consumers incentives to transfer their balance from one account to another. As a consumer and debt holder, you should analyze how the transfer will benefit you and look for any negative effects it could have on your finances or credit.
Significance
A balance transfer is when an individual or corporation transfers the balance of one credit card to a different one. The new credit card company submits a payment to the previous credit card company and the debt of the individual or company is transferred to the balance with the new company. The original credit card company considers the debt to be paid in full, and the company that received the balance transfer now has an account receivable owed by the individual or company with the credit card.
Benefits
Benefits of a balance transfer can come in a variety of forms. One is that the credit card holder might have the opportunity to transfer his balance to a credit card with a lower interest rate. There also can be a promotional period with the new credit card that involves no interest being charged on the balance transfer for an agreed upon period of time.
Considerations
To make a balance transfer, it is not necessary to open a new credit card. If an individual owns two credit cards and wishes to consolidate his credit card holding to just one card, he can make a balance transfer as well. He can transfer the balance from one card to another as long as there is enough available credit on the card that is being transferred to for the entire balance that is being transferred.
Balance Transfer Limits
When making a balance transfer, it is a good idea to call the credit card company that you want to transfer the balance to. You might not have enough room to make the transfer the entire balance originally. If you have a good credit payment history with the card you are transferring the balance to, the credit card company might be willing to increase your limit for the purpose of transferring the balance. Remember, that the credit card company will be the one making money off of your interest payments, which is an incentive for the company to consider increasing your limit.
Warning
When making a balance transfer, beware of transferring from one card that has a balance of less than half of your available credit line to another credit card with a balance of less than half your available credit line if this transfer will bring your balance close to the limit on the card you are transferring it to. One factor in a credit check is determining the percentage of available credit you have available on each individual account. In that situation the combination of the two accounts could actually harm your credit rating.
