The Pros and Cons of a Balance Transfer

The Pros and Cons of a Balance Transfer

A balance transfer is an excellent way to save money and get out of debt easier and faster. But if you don’t know how to use it efficiently and responsibly, it can result in more debt and will even take a toll on your credit score.

In a nutshell, a balance transfer is a process of transferring your balance to another account for lower interest and easy repayment terms. But, there are a lot of benefits and potential risks you should consider, so you should weigh out all the pros and cons before going on and doing a balance transfer.

Pros of a Balance Transfer

The primary reason for people doing a balance transfer is that it could potentially land them on a credit line that would give them a lower interest and better repayment terms, which makes it easier to pay off your debt. Because of having a lower interest rate and maybe little to no finance charges, you can focus on paying off your debt instead of paying the interest.

Also, if you are running on a promo that gives you a 0% interest charge for a while, it is possible that you can pay off your debt before the promotional period ends.

Another reason why people do a balance transfer is that it can consolidate their credit card debts. Moving all your credit card balances from several credit lines into one credit account will make it easier to pay debt since you will only have to worry about one repayment each month.

Another benefit of doing a balance transfer is that it can lower down your credit utilization in the long term. In the long run, yes, but not in the short term since transferring all your balances will make your credit utilization higher, especially if you incurred more debt while doing your finances irresponsibly.

Due to the promotional offer that most credit lines offer, your payments will go into the debt rather than to the interest. Because of this, your overall balance will go down, as well as your credit utilization. This is beneficial if you are planning to apply for CreditNinja transfer loans in the future since lenders like to see a lower percentage in your credit utilization.

Cons of a Balance Transfer

With the benefits of doing a balance transfer, there is no way it could be free. Most balance transfers have fees that could take up to 5% of the balance you are about to transfer while the minimum can be 3%. Before doing a balance transfer, compare the amount you have to pay for the transfer charge and the balance of the credit line you are moving from.

This is an excellent way to gauge how much money you are going to lose or gain in the process. Consider the costs both in the short and long run before applying for one.

If you decide to apply for a balance transfer, after all, check the requirements of the credit line you are applying. Not all of us can be applicable for a promo, and applying for it can be tedious and difficult. The most important thing to consider is your credit score. A good credit score will give you a higher chance to be approved for a promo than a bad one.

As a consumer, having a higher credit limit might be a good thing. But it will only prompt you to spend more. This is one of the potential risks you will have when you do a balance transfer. Even then, paying the debt off will be easier if you manage to have a 0% APR since your payment will go directly to the balance rather than the interest. However, this doesn’t mean that spending more because of a higher credit limit is justified. You may incur more debt than before.

Also, opening a new credit line for a balance transfer can result in a hard inquiry on your credit report. Your credit account average age will drop, as well as your credit utilization going higher.

Going higher than 30% credit utilization will make you lose points in your credit score. Not to mention that promotional offers don’t last that long. When it ends, you will have to pay an interest, which means more debt and more credit utilization if you don’t settle your debt immediately.


Doing a balance transfer can make your financial life easier. However, it will also worsen your financial situation if not handled properly. You will risk ruining your credit score by having a hard inquiry on your credit report, lowering your credit line average age, and having higher credit utilization by doing a balance transfer. But, no matter how grim it can be, by settling your debt, regularly checking your credit utilization, and being responsible in your balance transfer, you will gain the points that you have lost in the process of doing a balance transfer.

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