Q. I have accumulated too much debt on my credit cards. A friend of mine has suggested a credit card balance transfer. I want to understand how this will help and whether it will affect my credit score. – Suresh Singh
A. Credit card balance transfer is a great way to control burgeoning debt on multiple credit cards. Excessive use of multiple cards can lead to increasing debt on which a high interest rate needs to be paid, which stresses your personal finances. A credit card balance transfer consolidates your various debts into a single debt instrument which charges a lower rate of interest and provides more amenable terms and conditions. A single, consolidated debt will also make it easier for you to keep track of your payments. While you still need to pay your way out of this debt, your path becomes a little bit easier.
Before you get your credit card debt transferred, you should know that you will have to pay a nominal processing fee to the bank whose card you’re taking. Comparing interest rates and charges before availing this option is a must.
You have asked if credit card balance transfer affects the credit score. Yes, it does. Each time you apply for a new loan or credit card, the lender initiates a ‘hard’ check into your credit history to ascertain your creditworthiness. Each new ‘hard’ check reduces your credit score fractionally. So with this new product, your credit score may lower by a few points. However, you’ll be using this new card to consolidate your debts, which may be a good option for you in the long run. Therefore, you can take the credit score hit now with the assumption that regular repayments towards your consolidated debt will eventually improve your credit score in the long run.
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