If you're juggling multiple credit card payments, consolidating your credit debt could make your life easier. One way to do this is with a balance transfer credit card. By combining debt from multiple cards onto a single new card, you'll have fewer bills to track.
You may also be able to save money by using a balance transfer card. The cards typically offer low (or no) interest on transferred balances during an introductory period - often 6 to 15 months. If you get a card with a no-interest offer and pay off your balance before the period ends, you won't pay any interest on the debt.
These seven tips can help you make the most of a balance transfer credit card.
1. Compare the terms on different balance transfer cards.
Balance transfer cards can vary widely, so it's important to compare details such as the introductory interest rate and period, fees and post-introductory interest rate. Also, be aware that you may not be able to transfer a balance to a card that was issued by the same issuer of your original card.
2. Be aware of potentially costly fees.
It's important to read all the fine print, but pay extra attention to the following three points:
- Many balance transfer cards don't have an annual fee, but some do. For example, the Santander Bravo card offers zero-percent APR on balance transfer for 18 months but has a $49 annual fee (waived the first year). If you're trying to pay off your debt as quickly as possible, choosing a card without an annual fee might be a good option.
- You can generally transfer balances from other cards to the new card whenever you want by making a request online or over the phone, but there may be a fee to do so. The fee is usually 3 to 5 percent of the amount transferred, with a minimum charge of $5 to $10. To avoid this expense, you may want to find out if you qualify for a card that waives the fee for the first several weeks or months after activation, such as Chase Slate®. Chase Slate® currently offers an introductory $0 fee for balances transferred within the first 60 days your account is open. After that, the balance transfer fee jumps to 5 percent of the amount transferred (minimum $5).
- Some balance transfer cards don't charge interest on new purchases during a promotional period, such as The Amex EveryDay® Credit Card from American Express (after the 12-month promotional period is up, there's a variable APR of 13.99 to 23.99 percent for purchases and balance transfers). Others charge interest on new purchases from the start.
3. Transfer high-interest debt first.
If you currently have a lot of credit card debt, the credit limit on your new balance transfer card might not be high enough for you to transfer all your other cards' balances. If that's the case, you may want to start by transferring debt from the cards with the highest interest rates. Then if your card waives balance transfer fees, transfer as much debt as you can during the no-fee period.
4. Have a plan to pay off the debt.
To make the most of your balance transfer, try to pay off the entire balance before the low (or no) interest rate promotional period ends. Use a repayment calculator to determine your target monthly payment.
Continue to pay at least as much as you were before the transfer even if you can't afford the target payment. This'll allow you to make a bigger dent in your debt because most (if not all) of your payment will go toward the principal instead of toward interest.
If you don't repay the balance before the introductory period ends, interest will start to accrue. The interest rate can vary based on the card and applicant.
5. Don't pack on more debt.
Try not to add to your debt and jeopardize your repayment plan. Although some balance transfer cards offer no interest on new purchases, it may be best to avoid making any purchases with credit cards while you're completing your repayment plan.
Kevin Gallegos, vice president at Freedom Financial Network, says, "If the reason for considering a balance transfer is that you are living beyond your means, overspending may be an issue to deal with in the short and long term." If this is the case for you, you need to address the real problem - overspending - before you can get out of debt, Gallegos says.
6. Keep old accounts open.
You may be sick of seeing your old credit card, but it may be best to keep the account open if it doesn't have an annual fee. By leaving the account open, you'll have more credit to your name. This can help lower the percentage of your credit you're using, which may help your credit score.
You can put the card in a drawer or cut it in half if you want, but if your card is inactive for months on end the issuer may close the account, or you may not notice if there are unauthorized charges on the account.
To protect against this, set up a small automatic bill, such as cable or Netflix, and payment on the card. Then, enable text or email notifications to be sent when there are additional charges on the account.
7. Don't be scared to ask for clarification.
AJ Smith, managing editor at SmartAsset, says that sometimes picking up the phone makes a lot of sense. If you have questions about a particular card and can't find answers online, call the issuer and ask them directly.
Balance transfer cards can be a useful tool that you can use to consolidate your debt and save on interest payments. However, there's a lot of fine print and potential fees to watch out for. Read the details of each offer and ask for clarification if you need it. When applying for a balance transfer card, create a plan to pay off your credit card debt before the promotional period ends.
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