If you’ve racked up some debt, you may have thought about getting a balance transfer. A credit card balance transfer might seem like a good idea, but it is important to know whether it is the right move for you.
What is a Balance Transfer?
With a balance transfer, you shift your debt from one or many credit cards to another. This can save you a lot of money by moving your money from a high interest credit card to a low interest credit card. Furthermore, consolidating all your debt onto one card makes it much easier to manage. And many balance transfer credit cards offer 0% APR on purchases and balance transfers for an introductory period. It can be a simple and quick way to reduce your debt by paying down the balance instead of stacking up huge interest debts.
The Dos and Don’ts of Balance Transfers
However, before you run to a balance transfer credit card to fix your financial woes, make sure it is the right option for you. Here are some dos and don’ts to consider when deciding whether you should transfer your credit card balance.
- DO research different credit cards. It is important to look at the interest rate and balance transfer fees of various credit cards to determine which is best for you. You should also pay attention to annual fees, low intro rates, and rewards programs. Make sure you are getting a good deal overall, not just a good balance transfer rate.
- DO transfer other kinds of debt. Although many people assume that you can just transfer your balances from other credit cards, this is not true. You can also move certain loans and monthly installments to a no- interest balance transfer credit card, and use checks from the bank that issues the credit card. By doing this, you can save money and reduce debt on more.
- DO use your balance transfer credit card wisely. Just because you may now have a credit card with a 0% interest rate or some other introductory promotion does not mean you should start spending. If you are getting a balance transfer credit card, you probably have some debt. So keep that in mind when making purchases, and use this card as a tool to get yourself out of debt, not into more debt.
- DON’T choose just any balance transfer credit card. When you have a lot of debt, it is easy to accept anything that offers an easy way to get out of debt. But some of these cards may not have the best terms and conditions. Know what you are getting yourself into before you agree to it.
- DON’T close your old accounts immediately. Even though you may be transferring your debt to one card, closing all your old accounts at once will affect your credit score. When you close an account, it no longer counts in your credit history. This can easily lower your credit score. Furthermore, you can inadvertently impact your credit utilization rate. You have less credit available, so your credit usage ratio increases and your score can dramatically drop.
- DON’T continually apply for balance transfer credit cards. Many people think that applying for a new balance transfer card every time the 0% intro APR expires is a great way to avoid ever paying interest on your credit card debt. However, doing this can easily damage your credit score. When you continue opening low interest accounts but maintaining high debt levels, lenders see you as a financial risk. So, don’t repeatedly apply for these cards, and use the intro period on your balance transfer credit card as a one time crutch to help you get out of debt.
- How do I reduce credit card debt?
- Is there such a thing as credit cards with no transfer fee?
- What are the best balance transfer credit cards?
- How can I reduce credit card interest rates?
- When to Make a Balance Transfer
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- Will credit cards reduce your debt?