Is Balance Transfer the Best Choice?
There may be nothing more tempting in the world than the idea of getting something for nothing. This explains the popularity of transferring a credit card balance from your current card to one of those cards advertised with "zero percent interest for a year." Of course, if you’re a careful consumer you will realize that with a deal this good, there must be a catch.
It all starts with the fine print. Before you even apply for one of these cards, you should read all of the details. One important thing to look at is fees. Most cards will charge a transfer fee of around three percent of the total amount transferred. This can be as much $75 if the fee has a cap, or limit, and more if it doesn’t. Also, be aware that some zero-rate cards only have the special zero percentage for a period of six months or even less. Finally, find out if other charges, such as an annual fee, will eat into the money you plan to save by transferring your balance.
Many of these zero-percent credit card issuers won’t even tell you how high your credit line is until you actually apply for the card. What if your limit doesn’t end up covering the amount that you want to transfer? If you are planning to go forward with a balance transfer, you may need to apply for a few different cards in order to find out which card will give you the credit limit you are looking for. You can apply for more than one of these cards at the same time and then take the best one while canceling the other cards before you activate them. That kind of comparison shopping won’t do any serious damage to your credit rating, but it’s still not a good habit to get into!
Many of these cards will also only offer that zero-percent rate if you’re paying off a balance on another credit card. If you plan to use a zero-rate card to pay off any other type of debt as well, you will need to find one that lets you use convenience checks. Then, there are a few things to be aware of once you do make a move.
Once you do decide to make a balance transfer, you won’t want to use that card for anything else. You don’t get the normal grace period to pay off any new charges on your card if you’re already carrying a zero-interest debt. Be aware of this and plan accordingly. You also shouldn’t rush to cancel the card on which you held the original debt. If you cancel the card before the transfer is completed and the debt paid off, your old card may charge you a penalty. Also, cancelling an old card can have a negative affect on your overall credit score, so it may be wiser to simply pay off the old card and stop using it instead of actually cancelling it.
Finally, you need to make certain that you pay all of your monthly bills on time. If you are late with even one payment, you may actually lose that zero-percent rate that attracted you to the card in the first place. And don’t forget to pay off the card before the period for the zero-rate expires. Find out exactly when the payoff date is, and don’t miss it. Remember that your ultimate goal is to pay off your debt, not end up with a bigger one.