Should you Transfer your Credit Card Balance?

A credit card balance transfer is when you take the balance on one credit card and pay off that balance with another credit card. The balance on the first card is thus effectively transferred onto the second credit card. Why would anybody do such a thing? Put simply, people do this to save money on interest rates. However, there are some dangers that can defeat the purpose of a credit card balance transfer.

As I stated, people transfer credit card balances in order to save money on interest rates. If you have a credit card that has a 23% interest rate and another card with a 15% interest rate, why not transfer the balance on the 23% interest rate card to the credit card with the 15% interest rate? You will save money and you will only have to make one payment instead of two.

The first problem that people run into is that sometimes a credit card does not have enough available balance in order to receive the transfer. Therefore, if you need to transfer $500, but only have $300 available balance on the card to which you want to transfer, obviously you cannot transfer the whole amount. I would caution transferring $300 of the $500 because then you will have one card “maxed out.” This will negatively affect your credit score, and could lead to trouble with fees (over the limit fees) down the road.

The second problem people face is that sometimes they transfer a credit card balance to a card with a teaser rate. You might see a credit card that advertises a 0% interest rate for six months on all credit card balance transfers. You may think, “This is great!” However, you have to check the fine print. Most of the time, the interest rate after the six month introductory period changes from 0% to 20%+. Make sure that the default interest rate is lower than the current interest rate on your credit card or else the whole purpose for transferring your credit card balance will be defeated.

Third, make sure that there are no fees associated with your balance transfer. You should not have to pay additional money for transferring money. If the credit card to which you want to transfer your balance wants to charge you a fee, find another credit card.

Balance transfers can be a benefit. Avoid the teaser interest rates with sky high default interest rates. Additionally, if you conclude that a balance transfer will save you money, make sure that the card to which you transfer has a noticeably lower interest rate. It is a waste of time to transfer from a 22% interest rate credit card to a 20% interest rate credit card. If you use balance transfers effectively, you could literally save thousands of dollars.

What are Platinum Credit Cards?

Traditionally, credit card companies have levels for their credit cards if they offer more than one card. Usually, the credit card company has a base card. There is usually no color scheme attached to this card and it usually has the worst interest rate and credit limit. As you use that card and establish a good credit score, the company many offer you its gold card. This is the next level in the credit hierarchy. This card usually has a better credit limit and a lower interest rate. Additionally, this gold card probably comes with benefits like concierge service, roadside assistance, rewards points, or some other incentive. Eventually, you may be offered the platinum card. This card is usually the flagship card for the company. It will have the best interest rate and the best credit limit. In addition, it will have the best incentive and benefits package. Some companies offer a card that is “higher” than a platinum card. These cards are super exclusive and are very hard to obtain.

You need to beware of these gold and platinum cards. Sometimes, they are better by way of lower interest rate and higher credit limit. However, many times credit card companies will throw in annual fees on these “higher” cards. I am a firm believer that there is no reason for an annual fee, therefore, unless some amazing benefit is offered by the card, you should be wary of this fact.

Another thing you need to be cautious of is that credit card companies use the terms “gold card” and “platinum card” as marketing terms. Basically, you think you are getting something special, but it ends up being a terrible card in a shiny, attractive color. Do not be fooled by these marketing techniques. Always take a look at the credit card’s interest rate, fees, credit limit, and rewards options before you make any decision. Think about it like this: would you rather have a blue card that has a 9.9% interest rate, no annual fees, a credit limit of $5,000, and rewards points or a platinum card that has a 12.9% interest rate, a $50 annual fee, a $5,000 credit limit, and rewards points? To me, this is a no-brainer. I say, keep your platinum card if it is worse than my regular card. The point is, do not be deceived by marketing. Get the card that is best for your situation.

In a traditional sense, platinum cards can be a better card to possess and usually has to be earned, however, beware of marketing tricks and annual fees that tarnish the attractiveness of a platinum card.

Common Sense Credit

The term “common sense” is a misnomer. Some people believe that it is common sense to get only one credit card. Other people believe that credit cards are evil and, therefore, it is common sense to never own a credit card. Still, others believe that credit cards are a necessity in today’s financial times and, therefore, it is common sense to own more than one credit card. Who is right? The truth is that they could all be right, and they could all be wrong. Everybody has a different situation, therefore, “common sense” for their situation will dictate.

My “common sense” tells me that most of us will buy a home and/or a car in our lives. Therefore, unless you are paying cash, you will need to have established some kind of a credit score in order to qualify for the loan that is necessary to pay for these things. You cannot establish credit unless you open a credit account. The most common type of credit account is a credit card. It is true that you can get loans from your bank, but without an established credit report, you will have to secure these loans with some sort of collateral.

If you do own a credit card or credit cards, there is “common sense” advice for you to follow. First, use your credit responsibly. People do not get into financial trouble overnight. It is a gradual process that people refuse to acknowledge before it is too late. Constantly monitor your spending habits and financial statements so that you know when to stop spending or when your finances will allow you a little more leg room.

Second, pay your bills on time. You would be surprised how many people, who have the money to pay the bill, just plain forget to pay. As a result, their credit score suffers. If you are that forgetful or lazy, as the case may be, set up an automatic bill pay through your bank’s internet site. If your bank does not have such a feature, there are many companies that can set up an automatic bill pay for you.

Last, get updated, monthly credit reports from the credit reporting bureaus. By doing this, you will be able to see if any incorrect information is reporting on your credit report. By checking monthly, you will be able to dispute inaccuracies as soon as possible and, thus, minimize your damage. It will cost you about $12-15 every month to get all of your reports, however, think of it as financial insurance against inaccuracies and identity theft.

Do these “common sense” things and you will be able to obtain and maintain a high credit score and sound financial health.

What are the Pros and Cons of a High Credit Limit?

A high credit limit can be a great thing. First of all, it gives you more flexibility for purchases. Second, it gives you a lot of spending power. Last, it can increase you credit score because you debt to available credit ratio will be smaller. However, there are also some negatives that come along with a high credit limit.

As stated above, you will get more flexibility with your purchases, and you will have a lot of spending power with a high credit limit. While good in some respects, a high limit can get you into to trouble if you abuse it. If you have a high credit limit, this means that you have practiced responsible debt management. However, like most things in life, in you fall out of practice, you can get into trouble. Here, just because you have more spending power does not mean that you should utilize it unless you are making a planned purchase for a particular purpose. Do not make a big purchase just because you can. Doing this can turn the “pro” of having a high credit limit into a very big “con.”

Increasing your debt to available credit ratio can have a positive effect on your credit score. The interesting thing is that it can also have a negative effect on your credit score. It is all about timing. If you dramatically increase your debt to available credit ratio in a short amount of time, a credit reporting bureau may see this as you stockpiling credit in order to make a big purchase. This makes credit reporting bureaus nervous because they believe that you may not be able to pay off the big purchase (if made). Therefore, if you are going to increase your debt to available credit ratio, do it over a sizeable time frame and increase your credit limit in small monetary increments.

Both pros and cons exist with a high credit limit, but if you practice responsible debt management and increase your debt to available credit ratio over a sizeable amount of time, your high credit limit can be a powerful asset.