To Transfer or Not To Transfer
If you are thinking about transferring your credit card balance from a card with a higher interest rate to a card with a lower rate, there are a few things to think about first.
Reasons to Transfer
Transferring your balance to a balance transfer credit card with a lower APR or lower fees can drastically reduce your credit card debt and your monthly payments. Credit card companies offer many balance transfer options. The most attractive is a 0% APR on the balance transfer offering zero percent interest for six to 12 months, or even for the lifetime of the balance. Even if the APR offered for the transfer balance isn’t 0%, you may still be able to get substantial savings simply by reducing your interest rate.
Choosing to transfer your balance can also give you access to more benefits. You may be find a new card that offers a longer payment grace period, no annual fee, or even rewards including cash back. Car rental insurance, identity theft protection programs, and money saving discounts may be offered with a new credit card.
Another possible advantage of a credit card balance transfer is simply to take multiple monthly credit card payments and consolidate them into one. This can help you to avoid accidentally making a late payment and simplify your financial management.
Transfer Traumas
You don’t want to transfer from one card to another only to regret the move later on. Before you make a move, ask your current card if they will give you a lower interest rate. Tell them that you are considering transferring your balance to a credit card with a much lower rate and you might be surprised to find that they are willing to make you a deal.
Watch out for fees that may come with a balance transfer. The fee for balance transfers can be as much as 3 percent of the amount of the balance transfer, with minimums of $5 and maximums of $50 or more. A small balance may not be worth transferring simply because of the fees involved.
Also, be very cautious of late payments. Some credit cards may give you a few days before charging a late fee, but many charge you the day after the payment was due. The late fee may be a flat $10 or a percentage of the minimum payment that was due. The real danger with a late fee is that the credit card company may use this as an excuse to raise your interest rate from the lower rate that you transferred your balance to take advantage of. After transferring a balance, you need to be certain to make all payments in full and on time.
Another important fact to be aware of is that any payments you make will first be applied to the card balance with the lower or promotional interest rates before being applied to balances with higher APRs. This could mean that you must pay off your balance transfer before you can begin to pay off any new purchases which may be charged at a higher rate of interest.
Be careful to keep track of when the promotional period on a new credit card or one with a special balance transfer offer ends. When that promotional period is over, the card’s normal APR will be applied to any remaining balance transfer amounts. If this interest rate ends up being higher than the rate on original credit card and you still have a transfer balance, you may wind up actually paying more money instead of less.
Deciding to transfer a credit card balance is an idea that can save your money, but be given careful consideration. Read all of the fine print before you actually make a move.