You have probably seen offers for new credit cards that allow you to transfer balances from one card to the new card. While this may seem like a good idea and often is, there are times when it can be more costly than you might have planned. If you want to make sure your credit card balance transfer goes as smoothly as planned and provides the greatest benefit to you, be sure to consider the following questions.
Why am I in debt?
Before you transfer any balances on your credit cards, you should know why you are in debt. This is the underlying issue with most balance transfers and you aren’t solving any problems by simply moving your debt from one card to another. It may be a temporary solution, but you will just put yourself deeper into debt if you don’t evaluate your spending habits and credit card usage in the meantime.
What are the transfer fees?
A few years ago, credit cards had a maximum fee that they would charge for transferring your balance. For instance, the card may have charged 3 percent of the amount transferred with a maximum fee of $50. If you were going to transfer $10,000, for example, it would only cost $50. But with most cards doing away with capped transfer fees, you could pay $300 these days for that same transfer. Read the fine print and know the transfer fees before you finalize the transaction.
Is the card offering what I signed up for?
There is a concept called “the old bait and switch” which is prevalent in the credit card industry. This means that you are “preapproved” for a certain amount for your balance transfer card but when you get the card, the transfer limit is significantly less. If this occurs, you may have a problem because you have just increased your overall credit limit (which can negatively affect your credit score) and you are stuck with the debt from the other cards still. If you plan on financing any major purchases in the near future, you should keep this in mind and consider waiting until after the financing before signing up for the card.
Can I find a better rate?
With all of the balance transfer credit cards to choose from, you can shop around and find the best rate that you qualify for. Also, make sure you know about the card’s promotional rate and the rate you will pay once the promotional period is over or else you could be stuck paying a much higher rate for your balance transfer just a few short months down the road.
Should I close the old credit account?
After you transfer your balance from one credit card to the new one, it is important to cut up the old one. You might be tempted to close the account, but this will affect your credit score if you do it right away. Instead, cutting up the old card will help you resist the temptation to use them when you are out shopping. You can close the old credit account a few months later so it does not impact your credit score as much.
Answering these questions before you make your balance transfer will help keep your financial interests in tact. Do you have a practice of transferring balances from one card to another? If so, do you have any other tips to provide?