One way you can save money in interest charges on credit cards is to do a balance transfer. As you probably already know, a credit card balance transfer is when you take what is left on one credit card and move it to another credit card, preferably one with a much lower interest rate. When done right, a credit card balance transfer can be a good way for you to save money and to make the most of your credit cards. However, like all things related to credit, doing it the wrong way can end up costing you more.
Beware the introductory interest rate
The great thing about the credit card balance transfer is the introductory interest rate. Usually anywhere from a 0% APR credit card to a credit card that charges a 3.9% intro rate. You can save hundreds of dollars in interest charges in the six to 18 months that most intro periods last. And, even if you don’t get the entire balance paid off, at least you’ve made significant headway without a large portion of your payments going to interest, rather than actually reducing the principal. But there are some things you need to be aware of when it comes to your introductory interest rate:
- Length. A six-month rate at 3.9% can be helpful, but if it is not long enough to pay off your balance, it could cause trouble, especially if the regular rate turns out to be higher than your current card’s rate. If you have a high balance, it might end up costing you more in the long run. Unless you kept your old card and can transfer the balance back. Carefully consider whether the intro period is long enough to allow you to do serious damage to the principal before the rate goes up.
- An abrupt end. When you do a credit card balance transfer, it is important to realize that an introductory interest rate can come to an abrupt end if you go over your limit, make a late payment, or pay less than the minimum. When you are in an intro period, you must be very good about making the correct payments on time, and keeping away from your credit limit. Otherwise, you’ll end up with a very high interest rate.
Credit card balance transfer credit score consideration
Transferring a balance can have implications on your credit score. Be careful not to get too caught up in constantly applying for cards with balance transfer options. Do not apply for more than one in a six month period; but applying for a card once in a 12 month period is better. Several inquiries in a short period of time can damage your credit score. Patiently look for the best deal and apply for that car.
Also, it is a good idea to cancel a card when you get a new one. But this itself can cause problems. Part of your credit score comes from how long you have had an account. If you have had your old credit card for more than two or three years, cancelling it in favor of a card you just got can set you back. If you have the willpower for it, keep both cards and when you pay off the balance on your new card, cancel that card. Or, if you like the new card better, keep the old card stashed away for emergencies (using it only for small purchases now and then in the meantime) and keep the new card as well.