Transferring Credit Card Balances – What You Need to Know

Credit card balances can creep up on you before you even realize it. The balance grows and the interest rates get higher, leading to a situation where you could end up paying more in interest than the original amount you borrowed. That’s where transferring credit card balances comes in.

Transferring credit card balances can be an excellent financial move for people who want to get out from under a mountain of debt. It can help you save money by reducing interest rates and giving you a fresh start to make payments. However, there are some nuances to balance transfers that you should be aware of before proceeding.

In this article, we’ll cover some essential tips for transferring credit card balances to help you make informed decisions.

1. Your debt will get bigger before it gets smaller

In the past, balance transfers came with maximum fees. This meant that you paid a certain percentage, but no more than a certain amount. However, now transfer caps are gone, and if you have a high balance, transfer fees can add up quickly. It is inevitable, but make sure that you know how much will be added back onto your debt when you transfer the balances.

2. The introductory interest rates can be a trap

Credit cards often promote low (even 0%) introductory interest rates to lure in customers. An introductory rate lasts for a specified period, usually between six and 12 months. However, if you cannot pay off your balance before the introductory rate expires, then you need to pay attention to what the regular rate will be. Regular interest rates can be considerably high, ranging from 12% to 18% or even higher, depending on your credit score.

Before you transfer a balance, calculate whether you will save money in the long run. Don’t fall for an attractive introductory rate only to end up with a significantly higher regular rate.

3. Don’t skip on payments

If you fail to make payments on time, all of the money you saved by transferring balances may be lost. Most credit cards cancel the introductory rate and charge you the regular rate if you miss a payment. Be aware, there is no grace period when transferring credit card balances.

4. Pay your bills on time

Transferring balances from one credit card to another takes time, and you’re still responsible for making payments during this time. Experts describe the transfer process as taking about a month or more. Therefore, don’t neglect your debt while transferring balances; otherwise, you could sabotage yourself!

5. Good credit scores get the best rates

If you have a good credit score, you qualify for the best rates. Credit cards that promote low introductory rates may not be available to people with bad credit. People with low credit scores may be offered less appealing deals like no introductory rates and higher APRs overall. Although you can try for introductory rates, don’t rely on credit card features that may not be available to you.

6. Initial rate confusion

It’s vital to understand that some credit card companies offer introductory rates only for the amount of your balance, and any purchase you make is subject to the regular APR. For example, if you transfer a $3,000 balance to a new credit card with a 0% introductory APR and then purchase a laptop for $500, the $3,000 balance would remain at 0% while the laptop would carry a regular APR. Credit card companies usually apply payments to a balance with the lower interest rate, so any new purchases will accrue interest more quickly.

7. Avoid too many balance transfers

Transferring balances too frequently can negatively impact your credit score. Moving balances between credit cards too often can harm your credit. While paying off balances can raise your credit score, moving balances too often can hurt it. Keep this in mind when considering whether to transfer credit card balances or not.

8. Avoid too many open lines of credit

Transferring a balance is not enough to solve your financial problems. Instead, cut up the credit card and pay off the debt to avoid getting into more trouble. Keeping too many open lines of credit can be a trap. In most cases, it’s better for you to have a few cards that you know you can manage than lots that lead to financial difficulties.

9. Shop around for the best deals

When looking for a credit card with an introductory APR rate, look for a deal that goes beyond the introductory period. The card should have a standard APR rate that is as good or better than its introductory rate. Look for a card with a flat rate of about 12%, which is an appealing rate that can save you money in the long run.

10. Avoid applying for credit repeatedly

Avoid repeatedly applying for credit since it lowers your creditworthiness. When applying for a new credit card, lenders check your credit score. Constantly pinging your credit score can cause it to decrease. If you keep getting denied, stop applying and wait a few months before trying again.

11. Reduce spending using credit cards

If you choose to keep your credit card, use it only for emergencies. Spending too much on credit cards can worsen your debt problems rather than solve them. Avoid a situation where you end up owing more than you can repay, since this can lead to a cycle of overdrafts and late payments.

12. Figure out why you have financial difficulties

Transferring credit card balances is a necessary step to overcome financial difficulties in the short term. However, it’s just a short-term solution to a long-term problem. Take a step back and assess why you are in this situation to begin with. Determine if your financial situation is due to overspending or a loss of income. Once you identify the problem, you can create a solution to address it.

In conclusion, transferring credit card balances is not a simple process. However, if you educate yourself and monitor your spending, it can help you reduce your debt significantly. Keep these tips in mind when you choose to transfer balances, and you’ll be on the right track to become debt-free.