A credit card balance transfer can be a great way for you to get out from under the heavy monthly payments you are dealing with and consolidate your debt into one payment. Unfortunately, many people who are juggling multiple credit cards and making minimum payments end up in more debt than they were before they started juggling their cards. A credit card balance transfer can help you get back on track, keep your expenses in check, and reduce your debt. Here are some things to think about when you’re considering balance transfers and how to avoid a bad outcome.
First, if you are juggling three or more credit cards, a balance transfer may not be right for you. Balance transfers are only good for accounts that are paid in full each month. If you don’t pay your credit cards off each month, you are setting yourself up for more high-interest debt. The best way to avoid this outcome is to only use credit cards for emergencies or to make purchases that you know you can pay cash for. If you do use your cards for these types of purchases, only pay them off at the end of each month. You will lower your chances of setting yourself up for high-interest debt after a balance transfer.
Second, a balance transfer credit card may not be the way to improve your debt faster if you have a very high-interest debt. Credit cards generally have very high interest rates; this means that a balance transfer would lower your debt by only paying a portion of your high-interest debt, leaving you with a higher debt to pay. If you transfer your debt and then keep on applying for new credit cards, you’ll quickly build a large balance. This could lead to a hard inquiry on your credit score, which will hurt your score.
One last thing to consider is that if you decide to do a balance transfer, and you apply for a new credit card while you’re still enrolled in your current one, and you’ve already used all of your existing credit cards before you try out a new one, your chances of approval are greatly reduced. The issuer may require a deposit, as well as a credit check. In many cases, they will also deny your application. In short, if you’re looking to do a balance transfer and already have a high-interest revolving debt, an introductory new credit card won’t help you get out of debt any faster.
A third possibility is that you may be better off by doing a balance transfer just to save some money. To be clear, you should only do a balance transfer if you are able to pay off your debt within a year. Otherwise, it will just be money going down the drain. Of course, your credit score will be affected negatively but usually only for a short time. Once you get your balance paid down significantly, you will once again be able to qualify for a good credit card.
You should also consider the interest rate on the different cards offer you. Some balance transfer offers have very high interest rates. If you have a lot of credit cards currently, you could end up paying hundreds or even thousands of dollars in interest payments every year. You can avoid this unnecessary expense by transferring your debt to an introductory offer card for a limited period of time. While the interest rate on your new card may end up higher than that of other cards, it will be much lower than the average interest rate on the cards.
Of course, there are advantages to these no-interest balance transfer credit cards as well. For example, if you transfer your high-interest balances to an introductory offer card and then keep paying that loan on time, you could end up with a lower monthly payment. You may also be able to reduce your total debt by taking advantage of a lower interest rate or even transferring the balances to another introductory offer card. However, you need to make sure that you can pay off those balances in a reasonable amount of time before you move your balances to another low or zero interest rate card.
Finally, you need to take a look at the transfer fee. Some transfer offers have a zero transfer fee, while others do not. The difference between these transfers is usually determined by how long you plan to keep the account open. So if you plan on keeping the account open for six months or more, you would probably want to choose the no transfer fee offer. If you only plan on using the no transfer fee offer for three months or less, you might be better off paying the fee to transfer your balance to another introductory offer card instead. Either way, you will need to read all fine print to be sure that you are getting all of the benefits of the no transfer fee offer.