Balance transfer credit cards are a popular tool for paying off high-interest debt. They offer a low or 0% interest rate on transferred balances for a limited time, giving cardholders a chance to make significant progress on their debt. However, like any financial tool, balance transfer credit cards can be misused, leading to costly mistakes and even more debt.
Seven deadly sins of balance transfer credit cards to avoid
1 Ignoring the fine print
Before signing up for a balance transfer credit card, it’s crucial to read the terms and conditions carefully. For example, many cards offer a low or 0% introductory rate, but that rate is only available for a limited time, typically between 6 and 12 months. After that time, the interest rate will increase significantly. Additionally, there may be fees associated with balance transfers, annual fees, or other charges.
As an example of what to look for, Benchmark FCU is advertising a special balance transfer credit card featuring a 0% APR* on purchases and balance transfer up to 12 months* with no annual card fee. Failing to understand the fine print can lead to unexpected expenses, so take the time to read and understand the terms before signing up for a card.
2 Failing to pay on time
Like any credit card, late payments on a balance transfer card can have serious consequences. In addition to late fees and increased interest rates, with some lenders, a late payment can result in the loss of the introductory rate. This means that the cardholder will be charged the regular interest rate on the transferred balance, negating the benefit of the balance transfer in the first place. Set up automatic payments or reminders to ensure payments are made on time each month.
3 Continuing to add to the balance on the old card
A balance transfer credit card is meant to help cardholders pay off debt, not to add to it. Continuing to use the old credit card for new purchases while carrying a balance on the balance transfer card can lead to even more debt and interest charges. Make a plan to pay off the transferred balance as quickly as possible and avoid using the old card while doing so.
4 Using the balance transfer card for purchases
Similarly, using a balance transfer card for new purchases might be costly. While the introductory interest rate may apply to transferred balances, with certain transfer credit cards, it does not apply to new purchases. New purchases might be subject to the regular interest rate, which can be significantly higher than the introductory rate. Look for a balance transfer credit card like the one offered by Benchmark FCU. The special 0% APR* is valid on purchases as well as transfers. Read the fine print before determining which balance transfer card fits your needs. Focus on paying off the transferred balance before making new purchases on the card.
5 Not paying off the transferred balance before the introductory period ends
One of the most significant benefits of a balance transfer credit card is the low or 0% introductory rate. However, this rate is only available for a limited time. If the transferred balance is not paid off before the introductory period ends, the interest rate will increase, potentially negating the benefit of the balance transfer. Therefore, make a plan to pay off the transferred balance before the introductory rate expires.
6 Closing the old credit card account
Closing an old credit card account that had a high balance can seem like a smart move, but it can actually hurt a person’s credit score. This is because closing an account can decrease the total amount of available credit, increasing the credit utilization rate and negatively impacting the credit score. It can also negatively impact your credit history. Instead, consider keeping the old account open and making occasional purchases to keep it active.
7 Not having a plan to pay off your debt
A balance transfer credit card can be a helpful tool in paying off high-interest debt, but there are other considerations. Without a set plan to pay off the transferred balance, a person may find themselves with even more debt when the introductory rate expires. Make a detailed plan to pay off the transferred balance as quickly as possible, and consider seeking out additional resources, such as financial counseling or debt consolidation, if needed.
In conclusion, balance transfer credit cards can be a helpful tool for people looking to pay off high-rate credit card debt.
*APR = Annual Percentage Rate. Rate subject to change & based on an individual’s credit history. 0% Intro Rate is valid for purchases & balance transfer from other institutions for 365 days from card opening. The 0% rate will be in effect for up to 12 months from card opening & after 12 months the rate on all unpaid balances will convert to the rate member qualified for at card opening. 0% APR promotional rate is only valid on new VISA® Platinum Cards & subject to expire without prior notice.