The sudden rise of COVID-19 has presented varying degrees of economic stress among UAE residents. Institutions like the UAE Central Bank and some of the UAE’s biggest banks have acted swiftly to relieve some of this unexpected, yet very real financial pressure. Yet even with that assistance, this is a great time for all UAE residents to take a hard look at their current finances.
There are several ways that you can proceed, but we believe that one of the first things you should do is closely look at the balances on your credit cards. For many of us, our credit card balances are some of our highest payments per month. While we may be able to pay off our monthly credit card balances during “normal times, COVID-19 this increased time of uncertainty may make those payments much more difficult.
If you are feeling this type of financial pressure, you may want to seriously consider something called a balance transfer. Balance transfers, put simply, let you move high-interest debt onto another credit card that has a lower interest rate. By doing this, you can keep some of your hard-earned money in your pocket.
To better understand the power of balance transfers, we want to highlight five reasons why you should consider them. Whether one or all of the reasons resonate with you, we believe balance transfers can be compelling options in this era of COVID-19.
Five Reasons to Consider Balance Transfers
The first reason to go forward with a balance transfer centers on your current credit card interest payments. Simply put, balance transfers can temporarily eliminate a high annual percentage rate on your current credit card, allowing more of your payment to go toward your principal. If you are in deep credit card debt, this is a huge deal. A significantly lower (or even zero) interest rate means that you are getting significantly closer towards a zero balance. Therefore, even if there is a small fee to complete a balance transfer, a lower APR may be worth it.
Directly tied with lower interest payments is the ability to save cash in the long run. It’s pretty simple. Allocating more of your monthly payment to your debt outstanding rather than interest is going to keep more cash in your pocket. It is a substantial step on your way toward financial freedom. A balance transfer can offer that unique opportunity, letting you have a few key months where you can make your outstanding principal more manageable.
Balance transfers can also be a great idea because they may be able to raise your credit score. The effect isn’t direct, but there are some ways that your credit score can be improved with a balance transfer. Most notably, it can reduce your credit utilization ratio. This is assuming that you don’t close your old credit card account. Along with paying off your principal, you may see a bump in your overall credit score.
Fourth, a balance transfer can help you build good habits and instill discipline. One primary reason why borrowers seek balance transfers is to obtain some breathing room from overbearing interest payments and debt. Balance transfers can provide this, but they also provide great opportunities to get into great financial habits. For instance, paying down your balance every month and spending less than you make are terrific habits to build.
Finally, credit card balance transfers can make you happier. They can provide both short-term and long-term financial relief. By capitalizing on this relief and getting a better hold over your finances, you’ll feel happier and less stressed. This is a real benefit—especially as we are living through COVID-19.
A Compelling Option
These are just some of the benefits of credit card balance transfers. Granted, you will want to read the fine print and find a balance transfer that makes the most sense for you. Some balance transfer arrangements have a low (or zero) APR, but ramp up significantly after several months or if you miss one payment.
Even so, balance transfers can be a valuable tool in personal finance. Whether or not you choose to use this tool, we encourage you to do your research. You may find that a balance transfer is just the thing you need to get your financial freedom.
Soulwallet is a personal finance comparison portal in the UAE. With a team of “out of the box” thinkers and a deep understanding of the UAE consumer banking industry, we help customers make the best choices while shopping for financial products such as credit cards and loans.