Are Balance Transfer Business Cards a Good Option for Your Company?
Paying off one credit card with another credit card sounds like a slippery slope to follow. And that's because it is. So-called "balance transfer credit cards" and their zero interest offers applied to balance transfers are all the rage these days because of the high average balance Americans carry.
According to recent statistics provided by the Federal Reserve, the average American household carried a balance of more than $7,000 in July 2013; counting only those households that actually carry a balance, that average more than doubled to $15,325! And given the exorbitant interest rates cardholders pay on these shockingly-high balances, it's no wonder that a new credit card offer willing to take on that debt at zero interest for anywhere from six to 18 months have become so popular with American consumers.
The same is true of businesses with hefty credit card debt, too.
While American consumers who qualify (with good-to-excellent credit) have their pick of several zero interest balance transfer offers available today, the market for business cards that offer interest-free balance transfer periods is much smaller. There are only a handful of business credit cards that promote such an offer, which makes sense considering many startups rely so heavily on the credit afforded by business cards in their early months and years.
And let's face it: a lot of these balances aren't getting paid off each month, which of course means debt ripe with interest and big-time profits for credit card issuers and banks. Taking that into consideration, it's no surprise that the business balance transfer market is pretty soft.
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Should you transfer a business card balance to a new card?
OK, so U.S. Bank has a pretty big market share of the business credit card balance transfer niche. But even though the option is available, should business cardholders consider stepping onto that aforementioned "slippery slope" and transfer that business card balance to a new card?
If you've got the credit to get approved, absolutely. And here's why.
First, opening a new line of credit gives you and your business another "well" from which to dip into. A bigger credit line can also improve your credit by strengthening that all-important credit utilization ratio, i.e., the amounts you owe relative to your total available credit line. Credit is especially important for business and business owners, and can lead to better interest rates and rates of approval down the line.
But the real (and most obvious) benefit to transferring your balance is the elimination of interest payments and charges on your current credit card balance. It doesn't take a CFO to figure out that eliminating interest can benefit your company's bottom line pretty immediately, especially if you're carrying a sizeable amount of credit card debt on your current card.
Transferring that balance to a zero interest business card can lower your minimum monthly payments and give you the opportunity to pay down existing debt directly, interest-free for as much as 15 months based on the offers listed above. That's a helpful way to get your company's credit card debt under control and out of the red over time.
That said, business balance transfers aren't magic. Discipline is, of course, required to pay down existing debt, and there is a fee to make such a transaction, usually 3% of the total balance you're transferring.
And as stated previously, balance transfer business cards are only available to those with good-to-excellent credit scores. But the fact of the matter is that when used correctly, making a zero interest balance transfer to a new business card could ultimately save your company a considerable amount in interest while building your credit profile that much further.
