How to Avoid a Balance Transfer Mistake

Balance transfer credit cards provide a great opportunity to save money on interest. However, there are a few pitfalls one must avoid to prevent a money saving 0% balance transfer from turning into a balance transfer mistake. Fortunately, avoiding these mistakes is easy. Here are four tips:

  1. Continue to make payments on your old credit cards until your balance transfer clears. It can take anywhere from a few days to, in most cases, a few weeks for a balance transfer to clear with your credit card company. Until it has, don’t neglect bills from your old credit card. Use online account access to check on your balance. And be sure to check it even after your balance transfer clears. In all likelihood, you will have new interest charges on your old balance that leaves you owing more than your balance transfer covered. In my opinion, it is better to be safe than sorry. Thus, if you have a payment due soon, make the payment. If you end up overpaying your account, simply request a refund check. This way you can avoid late fees and prevent negative events from damaging your credit.
  2. Pay your new balance transfer bill on time. Obviously it is important to pay your credit card bills on time. However, with a 0% introductory rate it is even more so. Why? Because the fine print states that a late payment can void the 0% offer. In other words, if you miss a payment, you lose your special 0% rate. Additionally, credit card companies have become increasingly unwilling to forgive people who pay even a day late. Consumers with excellent credit who have never missed a payment in their life will be surprised to see how little it takes to get your interest rate increased to 29.99%, which is a common penalty interest rate used by many major credit card issuers.
  3. Don’t run up a bill on your old credit card and waste money paying interest on new purchases. Before the Great Recession, a number of credit cards offered a 0% interest rate on purchases and balance transfers. Today, there are still a few of these 0% on everything offers available. Thus, if you know you will be making more credit card purchases soon, apply for a credit card that offers a 0% APR on purchases and balance transfers, rather than running up a bill on your old, high interest credit card. (For information on credit cards that offer 0% rates on purchases and balance transfers, visit the 0% credit card section on Smart Balance Transfers.
  4. Don’t cancel your old credit cards: Unless your old credit cards have annual fees, closing those accounts can have a negative impact on your credit score. The reason for this is quite simple. 30% of your credit score is based on your credit utilization ratio. In a nutshell, this is the percent of available credit you are currently using. If you have $2,000 in debt and a total credit limit of $10,000, you have a 20% utilization ratio. This will positively impact your credit score. However, if you have $2,000 in credit card debt and a $3,000 credit limit, you are using 66% of your available credit. This makes you appear to be maxed out. (Learn more about the relationship between balance transfers and credit scores.)

Avoiding these balance transfer pitfalls shouldn’t prove too difficult. Oftentimes, these mistakes are made because of a simple oversight, such as forgetting to pay your credit card bill before going on a vacation. However, as banks aggressively pursue any and all options they have to generate fees, it is imperative that the pitfalls above are avoided.

Hopefully, now that you know what not to do, you are prepared to maximize the savings a balance transfer credit card can provide. If you need more information, there are a number articles available in our credit card articles section you may find helpful. You can also feel free to contact us with any questions you may have.