A balance transfer credit card can be a tricky proposition, and if you aren’t familiar with the process, it can cost you money. It’s not complicated to transfer a balance from one credit card to another; a 0% balance transfer can even save you much, but there are issues you should be aware of before you make the decision to change credit cards. You need to do your research in order to make the best choice possible for your particular situation. What works for your best friend or your parents might not work as well for you. The following is a list of issues you should consider before going ahead with a 0% balance transfer.
Considerations When Using a Balance Transfer
- What are your reasons for considering a balance transfer credit card. Is it to consolidate loans, establish more credit, dump a card that is starting to cost you too much money in a ballooning interest rate?
- Once you’ve established your reason, evaluate your ability to “pay back” the loan – because essentially, the balance transfer of A to another credit card, B, is actually looked at as a cash advance by B. Therefore, you want to make sure that repayment of this cash advance is something you can handle so you don’t incur additional fees.
- How long is the 0% rate going to apply? It depends on each different card company. Some offer three months, six months, even up to a year. Read the fine print and mark well when the interest rates jump – because they will.
- Not only will the rates jump, they will jump high. Compare credit cards and their offers to determine who has the best rate for the longest amount of time, and whose interest rate rises the least, especially if you cannot pay the balance off before that happens.
- Although the initial balance transfer credit card may be at 0% interest, new purchases might not be covered. This means if you transfer your debt from one card to another and proceed to charge even more, the new charges are subject to the interest rate. You’ll want to investigate what that is and if it applies to new purchases.
- If you opt to transfer your balance from one card to another, don’t forget to cancel the old card. It can impact your credit rating to have a few cards with an open balance, plus it can be very tempting to charge on the old card. That defeats the purpose of transferring your balance in the first place, so once the transfer has happened, close out the old card.
The smart thing to do before you decide to participate in a 0% transfer from one credit card to another is to do your research. Compare credit cards and what they offer. It will be obvious quite quickly which ones will help you in your current situation and which ones will not. A little bit of work at this stage will save you not only money, but will also save you from making any expensive mistakes.
This is a guest post from Mike at FinancialFacts.Org