Five Things You Don’t Know About Balance Transfers

Thursday, August 22nd, 2013

They flood your mailbox. Your bank calls and offers them to you. They even pop up on your computer screen while you surf.

I’m talking, of course, about balance transfer offers. If you have good credit, odds are you are bombarded with them from every credit card you carry. If you have debt, you may be tempted to say yes—and it might even be a great idea to say yes—but before you do, here are five things you may not know about balance transfer offers:

  • They come at a price. That 0% APR introductory period isn’t free. There is almost always a balance transfer fee that you must pay first, in order to save on interest for the next six, twelve, even 18 months. The fee is usually 3% of each transfer. The transfer is only worth doing if you will save more than that by transferring the balance.
  • You need to have a payoff plan. Don’t just transfer your balance and keep paying the minimum amount due each month. Do the math and figure out how long it will take you to pay off the entire balance before the promotional period ends. That way you save the most money and end up never paying another penny in interest.
  • You can’t just stop paying on your old card. Until the balance transfer goes through, you are responsible to keep making payments on your old credit card. It can take anywhere from two to four weeks for the balance transfer to be processed, so make sure you keep paying off your card until the transfer goes through. And if you haven’t transferred the entire balance, you’ll still need to make payments to both cards every month.
  • Making purchases on your new card can throw a wrench in your financial plans. If you’ve carefully calculated how long it will take you to pay off your balance after you get your new card, using it to make a purchase will change the whole game. Especially if the new card doesn’t have a 0% APR on purchases offer, using it to buy something new defeats the purpose of doing the transfer. Until your balance is paid off, avoid using the card for purchases.
  • You’ll pay a lot for paying late. If you make a late payment on your new balance transfer credit card, you might lose your promotional rate. That 0% APR can jump up to the regular APR, or even a penalty APR, that was higher than what you were paying before. So be sure to set up automatic payments and never miss a due date.

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