Questions You Should Ask When Considering a Balance Transfer
You may have seen or received offers for credit card balance transfers and wondered what they are, how they work, and if they could help improve your finances. A balance transfer is when you transfer the balance of one credit card to another by applying for a new card at a lower interest rate, then moving your balances from your existing card to the new one. Essentially, you are using the new card to pay off the old one, but at a much better rate. Balance transfers can help you pay off your current high-interest debts faster, as long as you have a clear understanding of how balance transfers work.
Make sure you ask and answer these questions before transferring your credit card balances:
Will it Help or Hurt?
Transferring your existing credit card balances to a new card with a lower interest rate can help you save money and pay off your debts faster. A significantly reduced interest rate could save you hundreds of dollars in interest on your credit card payments throughout the year. Transferring your balances can also help you improve your credit utilization ratio, and thus your credit score, by increasing your available credit and decreasing your overall debt.
However, since a portion of your credit score is calculated according to the age of your credit accounts, closing your older account once it is paid off could actually decrease your credit score. If you can resist putting new charges on the old card, and if you won’t be charged any annual fees, it can help your credit score to keep your old account open as you continue paying off your debt.
Is There a Balance Transfer Fee?
Some financial institutions and credit card lenders charge a fee for balance transfers, or include a hefty annual fee. Make sure you shop around to try to find a card with no additional fees, so you can save even more. Our Robins Financial Visa® Platinum Rewards Credit Card has no balance transfer fee or annual fee.
Is There A Limit?
Some credit card lenders have a limit on the maximum amount they will allow you to transfer, or you may be limited by your approved credit line. If your current balances exceed the amount of your available credit, you can still transfer your balances, you will just have a remaining balance on the existing card, and will need to continue making payments until that card is paid off in addition to making payments on the new balance transfer card.
Will the Interest Rate Increase?
The rate advertised in many balance transfer promotions is typically valid for an introductory period, after which the interest rate may increase. Make sure you carefully read the terms of the offer to determine if and how much your rate will increase after the end of the promotional period. A good rule of thumb when it comes to balance transfers is setting a goal to have the transferred balance paid off in full before the introductory interest rate increases.
Is the Rate Different for New Purchases?
Determine if the promotional interest rate applies to transferred balances only, or if it includes new purchases made on the card. New purchases may sometimes have their own interest rate; check the offer details to verify whether the promotional rate includes transactions other than balance transfers. If there is a different rate for new purchases, you may be better off using your balance transfer card solely to help you pay off your debt, and using another card for new purchases.
Can I Transfer My Balance Again?
If you still have a balance on the card when the introductory rate expires, it can be tempting to find another balance transfer offer. However, repeatedly opening new credit accounts while still carrying a high balance can damage your credit even further. Don’t get comfortable moving your debt around from one card to another. Commit to paying your balance off entirely before the promotional period ends.
Our Robins Financial Credit Union 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, check out our Credit Card Payoff Calculator.