Balance Transfer Dos & Don’ts
Transferring your existing credit card balances to a new low-interest credit card can help you save on interest and pay off your debts faster. But before you make the decision to transfer your balances, it’s important to understand the advantages and disadvantages of the card, as well as what you should and shouldn’t do when applying for a balance transfer offer.
The primary reason you would apply for a new credit card and transfer the balances from your old card to the new one is to take advantage of a lower interest rate. If you have a high interest rate on your current card, transferring your balance will help you save significantly on interest payments, making your payments more affordable. With a lower interest rate, more of your payment will go toward your overall balance and you will be able to pay that down faster than you would by keeping the high-interest card.
Another reason to transfer your balances to a new credit card is the possibility of better terms. If your current credit card has high fees, switching to a new card can help save you from paying outlandish fees.
An additional benefit of balance transfers is debt consolidation. Moving multiple credit card balances to one card consolidates those debts into one single payment, ideally at a lower interest rate with a more affordable monthly payment. This will help you stay on top of your debt repayment, so you won’t have to worry about keeping up with multiple payment due dates, and will help prevent you from incurring any additional fees for late or missed payments.
Depending on the specific qualifications of the balance transfer offer, not everyone will qualify for the promotional interest rate. Your credit score is a key factor in determining what rate you qualify for. You’ll want to make sure that your interest rate will actually be lower with the new card, otherwise it may not be worth it to transfer your balances.
Something else to consider before taking advantage of a balance transfer offer are the fees. Some credit card companies charge a fee to transfer balances from another lender, so it would be wise to shop around for a card with no balance transfer fees. Our Robins Financial Visa® Platinum Rewards Credit Card has no balance transfer fees or annual fees.
Another factor to keep in mind before transferring your balances is the potential impact on your credit score. Applying for new credit and opening a new account will likely affect your score, especially if your new overall balance ends getting too close or going over 30% of your total available credit limit.
You will also need to consider the risk for adding on more debt. The whole point of a balance transfer is to consolidate and pay down debt, but transferring your balances to a new cards means you will have more credit available to you. It’s important to be honest with yourself about your level of discipline to not take advantage of the increased credit, and focus on getting your current debts paid off without adding any more.
Now that you’ve considered the benefits of balance transfers, as well as the potential drawbacks, here are the best practices for how you can make a balance transfer work for you:
The most important thing before taking advantage of a balance transfer offer is to make sure you understand the terms and conditions of the offer, as well as any fees. Many cards will charge you a fee to transfer balances to a new card, however there are cards that don’t include a balance transfer fee, so it can be beneficial to try to find one without this fee. Our Robins Financial Visa® Platinum Rewards Credit Card has no balance transfer fees, or annual fees.
Another thing to understand is the interest rate. If the rate is part of a limited-time promotional offer, you’ll need to make sure you know how long the promotional rate is going to last, and what the new rate will be when the promotional period expires. A good rule of thumb when it comes to balance transfers is to get the full balance paid off completely by the time the promotional period is over.
The primary purpose of a balance transfer is to make your debt more manageable so you can pay it off faster. Creating a plan for your debt repayment strategy can help you figure out how to focus on paying your debt off quickly and easily. Our financial calculators are a great tool to help you determine how long it will take you to pay off your current balance, or how much you should be paying monthly to have your debts paid off by a certain time.
Though you may feel like you want to put as much of your money as you can into getting your debt paid off as quickly as possible, it’s still important to continue setting money aside for savings and emergencies. You won’t want to find yourself in a situation where you have to use your credit card to take care of unexpected expenses, then you wind up adding to your overall balance, meaning it will then take even longer to pay off. Our Super Saver Certificate is designed to be an excellent start to your emergency fund, so you can be prepared for those unexpected events.
Avoid opening any additional new credit accounts or applying for additional transfers. Any application for new credit will affect your credit score and could cause it to drop, so you’ll want to hold off on applying for any new credit after performing a balance transfer.
If the new card you are transferring your balances to has a higher interest rate than your current card, it won’t be worth it. Make sure the interest rate of the new card is low enough that it will be able to help you save money.
Don’t make any additional charges to the old card. The point of transferring your balances to a new card is to help you pay down your debt, so making new charges on the old card just creates more debt that you will still eventually have to pay off.
Even though you aren’t making any new charges on the old card, it can still help your credit to keep the account open rather than closing it. It is typically suggested to avoid closing your oldest credit accounts, especially if you are still trying to establish your credit history. However, if you will be charged an annual fee if the line of credit remains open, you should go ahead and close the account. If your account is closed in good standing, it will remain on your credit report for ten years, and can help improve your credit score. Make sure you understand the effects of closing your old account before making that decision.
If you’re currently paying more than the minimum payment on your credit card, don’t reduce the amount of your payment just because you transferred your balances unless you absolutely have to. Continuing to make more than the minimum required payment will help you pay off your debt faster.
The last you thing you want to do is let transferring your balances have a negative impact on your credit score. Be aware of what your credit limit will be before you transfer. If the card you are transferring your balances to has a low credit limit and you transfer the full balance, you may exceed the recommended 30% credit utilization threshold, or even max out your credit limit. Doing so would result in a decrease to your credit score, where balance transfers are intended to help you improve your credit and pay off your debt easily.
Robins Financial Credit Union is committed to helping our members. Our Visa® Platinum Rewards Credit Card gives you premium purchasing power with no balance transfer fee or annual fee, and we offer convenient payment options to help make your life easier. If you’re considering a balance transfer, be sure to check out our Credit Card Payoff Calculator.