How to Do a Credit Card Balance Transfer Without Getting Burned
We all get them in the mail - those ubiquitous credit card balance transfer offers. They always seem like an ideal way to consolidate your debt and start making a dent in paying it off. But if you're not careful, you could be hit with unanticipated fees and interest payments. The trick is to create a game plan and know what you're committing to before you authorize any transfer. Here are five ways to take advantage of the offers before they take advantage of you:
1. Know How Much You Can Afford
If you request a large balance transfer and can't pay it off before the 0% promotional term ends, you may end up paying more in interest than if you'd never done it. To protect against this, run some numbers to figure out how much you can borrow.
For example, let's say you're considering a $4,000 balance transfer through the Citi Simplicity credit card, which is currently offering 0% interest for 18 months. First, factor in the transfer fee of 3%, which makes the payback amount $4,120 and the monthly payment roughly $230. Taking into account all your other monthly expenses, ask yourself if you can afford this increased payment. Keep in mind, the Citi card has no annual fee, but many do, so figure that into your choice as well. Balance transfers are only worth it if you pay them off before the promotional term ends.
2. Never Miss a Payment
Missing your due date by even one day voids the terms of the balance transfer, and means your interest rate will take a huge leap upwards. So even if you can't meet the monthly payment you accounted for, at least send in the card minimum in time.
Also, be wary of setting up automatic payments. This option is available if you're generally forgetful, but credit card companies are known for changing due dates. You'll be notified in a mailed, tiny-print disclaimer, but if you disregard these, you could be in big trouble. Best advice: Pay manually, review your statement each month, and ensure payment is received at least five days early.
3. Don't Use the New Card for Purchases
Many cards additionally tease you with a 0% APR for purchases over and above any balance transfers. However, not all companies include purchases in the deal, so if you use such a card, you'll be charged the regular interest rate. Using your card for purchases may also cause you to go over your limit, which voids the initial terms of the balance transfer and could affect your credit score. To be on the safe side, sock away that card as soon as it arrives.
4. Do Only One Transfer at a Time
It's really pretty simple: Opening multiple lines of credit in a short period of time can ding your credit score.
5. Don't Close Your Old Accounts
Once those longstanding cards are paid off, do not close them. Having a large amount of available credit ensures you stay in good standing. To avoid having them closed by the issuer for nonuse, break them out every few months and put a few small purchases on them - then pay off that balance immediately, before any interest accrues.
Final Thoughts
The average American carries roughly $7,000 in credit card debt. If you're anywhere near this, the time is now to start paying off those debts. The interest you pay chews through your savings, preventing you from allocating that money for more preferred personal uses. Balance transfers can help you in this mission. Think about it: You already clip coupons, lower your thermostat, and do what you can to reduce your cell phone bill. With some prudence and a smidge of sacrifice, you can make credit card debt a thing of the past too.
How did a balance transfer work out for you - was it worth it?