People in debt often consider a credit card balance transfer as a method of debt consolidation. Through a balance transfer, you move one or more credit card balances to another credit card, usually with a lower interest rate. The good thing about a balance transfer is that the lower interest rate removes expensive finance charges from your balance, making it easier to repay. But, are balance transfers worth it?
If you’re considering balance transfer as a solution for your debt, then you should do it while your credit is still in good shape. Waiting until you can no longer afford to make your payments may be too late. Qualifying for a good balance transfer interest rate requires you to have a good credit rating. Credit card issuers usually only give those long 0% introductory rates to borrowers who have excellent credit. This typically means you can’t have missed a payment on your debt. If you’re already behind, there’s a chance you won’t qualify for a good balance transfer deal.
The other thing you usually need for a balance transfer to be successful is a credit limit big enough to handle your debt. If you don’t have enough credit, you’ll probably only be able to transfer some of your debt and the rest will have to remain where they are. You could still make this work, though, by transferring the debt with the highest interest rate, even if it’s just a portion of the balance. Or, you could try qualifying for more than one balance transfer credit cards.
You should be disciplined about not creating new debt when you consolidate your debts with a balance transfer. Once you move your balances to a new credit card, your credit limits will open back up. Many people will use that opportunity to create more debt, a move that will likely hurt you in the long run. Another credit card balance would mean you’ll have another payment to make and would probably make it harder to pay off your balance transfer before the intro rate expires.
Even if you have a low introductory rate, your balance transfer likely won’t be free. Credit card issuers almost always charge a balance transfer fee on balances you bring from another credit card. Issuers usually charge a minimum flat fee or a percentage of the transfer, whichever is greater. For example, the fee may be $5 or 3% of the transfer. A transfer of $1,000 in that case would result in a $30 fee. Obviously, the more you transfer, the higher the fee.
If you can’t pay off the balance transfer before the introductory rate expires, the transfer may have been worthless. Once the low interest rate expires, the regular balance transfer rate takes effect and so does the higher interest. You would then have to increase your monthly payment if you want to continue decreasing your debt at the same rate. Otherwise, it will take longer to pay off your balance.
Paying off your debt with a balance transfer consolidation could be beneficial, but you have to follow certain steps. Try to pay off the debt before the introductory rate expires – get a credit card with a long introductory rate if you can. Try not to make new purchases on the cards that you’ve just transferred balances from. That could only make it more difficult to pay off your balance.