When you have high interest credit card debt, one of the best things you can do to reduce your expenses and get out of debt faster is to transfer your debt to a 0% balance transfer card. However, you do want to take your time and read the fine print of any balance transfer offer you are considering because overlooking some of the details can cost you. In order to save the most money with a balance transfer offer, you need to avoid the following common balance transfer mistakes:
Pay Attention to Balance Transfer Fees
Balance transfer offers generally charge a fee to transfer balances from other credit cards to the new credit card. The fee typically runs between three and five percent and varies from card to card.
When considering a balance transfer offer, make sure you are comfortable paying the fee. Some cards offer very long balance transfers – 24 months in some cases, such as with the Citi Platinum MasterCard – and charge low 3% fees. However, other cards only offer 0% balance transfers for as little as 6 months and charge 4% fees. Thus, before you begin to fill in an application, closely review the fine print to make sure you are not being charged a high transfer fee for a short term 0% rate.
Also, you can sometimes reduce or eliminate these fees by using cash back promotions to get a virtually free balance transfer. With one of these offers, you still pay a fee, but get a sign up bonus of $50 to $100 that helps offset the cost of fees which will be about $30 for every $1,000 you transfer.
Lastly, don’t let fees deter you from doing a balance transfer. It may seem expensive to pay 3% upfront, but compared to a 12, 15 or 18% interest rate, these fees are chump change.
The Interest Rate on Purchases
While you may be moving high interest credit card balances to a 0% balance transfer offer to avoid paying interest while you pay off your debt, you may still have credit available on the new card to make purchases. Keep in mind that new purchases on your card are not likely part of the 0% balance transfer offer, and you’ll want to know what the interest rate on new purchases or cash advances are before you use them.
Some credit cards will offer a 0% APR on purchases that lasts as much as a year, but others may not even have one. Running up a balance with purchases on your new card or your old card will likely cost you money and can definitely slow down the process of getting out of debt.
The Interest Rate After the Balance Transfer Offer Expires
All good things come to an end and balance transfer offers are no exception! It is very rare, if not impossible, to find a 0% balance transfer offer for the life of the transferred balance. More often, the offer will be good for 6 to 12 months at 0% interest. Look at what the interest rate will be once the promotion ends. Is it higher than what you’re currently paying? If so, you’ll want to do some calculations to determine whether or not you are going to save money, break even, or end up paying more to transfer your balances to the new card.
Hopefully, you will be able to repay your balances before the higher rate kicks in. But if you can’t, you can apply for a new 0 balance transfer from a different company and do another balance transfer once your 0% rate expires. However, always plan for the worse and assume you’ll be paying whatever rate you new card offers just in case.