Top 5 Balance Transfer Mistakes
1. Failing to Read the Fine Print
This is probably the biggest mistake people can make in terms of opening any new credit card account. The fine print is your key to getting it right the first time. By reading the fine print, you are keeping yourself effectively knowledgeable about the particular credit card offer you have received, which can later translate into managing your money effectively. The fine print should and does tell you everything you need to know about the offer, from the length of the 0% promotion it may present to the APR it will transform into once the promotion time is up. It may seem tedious, but a few minutes reading it are well spent.
2. Too Much, Too Little Time
If you have a balance of $13,000 then chances are you won’t be able to pay it off in a six month time period. When your balance is higher, you are going to want the longest time possible in order to pay it off, especially when looking at 0% APR options. Balance transfers are done in order to obtain a lower APR, thus saving money over time. Because most APRs jump up to high double digits once the promotion has ended, you may not be doing yourself any good. Try crunching the numbers and looking for decent APRs after the 0%. You might even try asking the company for a lower APR if you are on time with your payments and pay more than the minimum.
3. Adding On
Making more purchases on the card you moved your balance over to will not help your situation. Most people assume that amount of money will be absorbed into your moved balance and be included in the low APR. Not so. Instead, it will have the regular APR and will not be eligible for repayment until the balance is gone, as all payments made will go directly toward the balance. If you obtain a new card for a balance transfer, keep it exclusively for that balance and nothing else.
4. Paying the Minimum Only
By paying the minimum, you are only dragging out the time it takes to pay of the balance and be free of it and any possible extra interest. Some people are incapable of paying more than the minimum, but if you can, pay more. Low APR promotions only last for so long, and by keeping payments low, your balance might not be gone or be to a number low enough so that the new APR does not have a strong impact. You moved your balance to a new card for a reason, be sure to make it worth your while.
5. Using the Option Way Too Often
There is nothing wrong with opening up a new credit card account in the hopes of paying off your outstanding balance and freeing yourself from all that owed money. Abusing this option, however, will only bring about negative consequences. While staying on top of payments keeps your credit score in a prime spot, should your balance continue to grow and you continue to move it from one credit card to another, each one a new account, your credit score will quickly plummet. Opening too many credit cards shows a lack of commitment as well as responsibility. It shows you are not able to handle your money well, which translates to major banks as a financial risk. If you cannot handle a single credit card balance, how will you be able to handle a mortgage or other large loan?
Use new credit cards wisely and pay close attention when utilizing the balance transfer option and you should be out of debt and still with a good credit score in no time.