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Taking advantage of a balance transfer offer allows you to temporarily pause interest while you tackle high-interest debt. Done correctly, you can pay off your balance and gain significant savings. However, mistakes—like missing the transfer deadline or making a late payment—can be costly or cause you to lose your 0% annual percentage rate (APR). Here are several more balance transfer mistakes and ways to avoid them.
1. Not Shopping for the Best Offer
There are dozens of balance transfer cards to choose from, with varying terms and promotional periods. Before applying, it's crucial to look at a variety of balance transfer offers to be sure you're getting the best deal. As you compare offers, consider these factors:
- Promotional interest rate
- Length of the promotional period
- Standard rate that will apply after the promotion
- Fees and when they apply
As you narrow your options, take advantage of the prequalification process. This allows you to find cards you're likely eligible for without adding new inquiries to your credit report.
2. Assuming You Can Transfer All of Your Debt
You can transfer multiple balances, but the total amount you can transfer depends on your credit limit. In addition, your balance transfer limit may be less than your regular credit limit. Because of that, you may not be able to transfer all your debt.
The amount you can transfer may also be limited based on the credit card issuer—you can't transfer balances between cards from the same card issuer.
To ensure your highest-rate balances get transferred, when it's time to request a balance transfer, enter your accounts in order of priority. If your balance transfer request is higher than your available credit, your card issuer will typically process transfers in the order you requested them.
3. Missing the Transfer Deadline
You may have a limited amount of time to complete the balance transfer and take advantage of the 0% intro APR offer. After the deadline passes, balances transferred may receive the higher, standard APR.
Read through the terms of the balance transfer carefully and note the time frame for making your balance transfer request. Set a reminder so you don't miss the deadline and the opportunity to pay off your balance with no interest.
4. Using Your Balance Transfer Card for New Purchases
Technically, you can use a balance transfer card for new purchases when you have available credit. However, paying off your balance transfer gets complicated when the regular APR applies to purchases.
Purchases don't get the same grace period on interest, which means you'll have to pay off the full balance to avoid interest on purchases. If you opt to pay your purchases balance down over time, any amount you pay above the minimum payment is applied to the purchase balance since it has a higher interest rate. Your transfer balance may not go down significantly until the purchase balance is completely repaid.
Until you've paid off the balance transfer, it's better to use a different credit card—or debit card—to make purchases. Paying off your card balance in full every month is ideal since you'll benefit from a grace period and avoid interest.
5. Missing a Payment
At a minimum, a late payment means you'll pay a late fee, which can be as high as $41. In addition, you could lose your temporary 0% APR rate and have the penalty APR imposed on your balance instead. Your rate will go down after several months of on-time payments, but the higher rate may still apply to new purchases. The credit card terms will list the penalty rate and describe what triggers it.
To avoid late payments, set an automatic payment to pay at least the minimum payment before the due date. That way, you'll never miss a payment.
6. Not Considering the Fees
As you consider accepting a balance transfer, don't forget to factor in the balance transfer fee. Each balance transfer is charged a fee—either a flat fee or percentage, as high as 5%, of the transfer. Paying the fee may be worth it when the fee is low compared to your interest savings.
The balance transfer fee is separate from the transfer itself, but does factor into the total transfer cost. If you transfer a $5,000 balance, for example, your balance transfer fee could be as high as $250. Understanding the balance transfer fee is important since your balance transfer total, including fees, must be less than your credit available for transfers.
7. Using Your Old Credit Card
Once you transfer the balance to the new card, your old credit limit will be completely available for new purchases. You might be tempted to use it, especially if you can earn rewards. But that could put you in an even worse position than before you made the balance transfer.
Another credit card balance means another payment to keep up with. It can strain your budget and make it harder to pay off your transfer balance. Plus, there's a risk of digging yourself deeper into debt by running up a balance on the old card again.
8. Not Having a Plan
To take full advantage of a 0% intro APR offer, you have to be tactical. If your payments are too low, you may have a balance left when the regular APR kicks in.
Plan your payments so you can pay off the transfer balance before the promotional period ends. That way, you completely avoid paying interest.
Calculate the optimal monthly payment. Add the total amount transferred and the balance transfer fee. Then, divide that amount by the number of months in the promotional APR period. The result is the minimum you can pay each month to pay off the transfer before the 0% APR expires.
9. Stopping Payments to Your Old Card Too Soon
It can take a few weeks for a balance transfer to be completed. In the meantime, you still need to pay at least the minimum on your existing credit card until the balance transfer is complete. Otherwise, if you miss a payment, you could be charged a late fee, have a late payment added to your credit report or even trigger the penalty rate.
Monitor both your old and new accounts to confirm the balance transfer is complete before you stop making payments on your old account. It won't hurt to check your old account for a month or two after the transfer is complete to confirm no new fees or interest have been charged to the account.
10. Not Double-Checking the Transfer Account Numbers
An entry error could lead to a transfer payment being made to the wrong account. A typo can be painful to fix, especially if you don't catch it before it processes.
Before submitting the balance transfer form, verify your entry is accurate by double-checking the card number on your credit card or a recent billing statement.
The Bottom Line
A balance transfer credit card can simplify your debt management and bring interest savings. Since they typically require good or excellent credit to qualify, it's a good idea to check your credit report and score before applying. You can narrow your search to the cards you're most likely eligible for.
Once you're approved, be careful but strategic in your approach to transferring a balance. Taking the right steps allows you to avoid costly mistakes and make the most of your balance transfer.