Pitfalls of Balance Transfer Credit Cards

Many people are looking for ways to save money and pay off their debt. Some folks are finding the answer in balance transfer credit cards. Consumers take advantage of the low introductory rates on new credit cards by transferring balances from higher interest rate cards. This strategy can be very successful and save you a lot of money, as long as you avoid the pitfalls.

The first mistake many people make when using a balance transfer credit card is not paying off the entire balance transferred during the introductory period. Not only would they be liable for the standard interest rate, but they could be responsible for retroactive charges, too. Many banks charge retroactive interest on the entire balance if it’s not paid off when the introductory period ends, so it’s always a good idea to pay off the balance transfer before the standard rate kicks in.

Another mistake many consumers make is using their balance transfer credit cards for purchases. Some cards offer a 0% APR on balance transfers but charge a higher rate for purchases. They are then surprised to learn that their purchases will continue to accrue interest over many months while they pay down their balance transfers.

This is due to a built-in trap known as negative payment hierarchy. With this strategy, banks apply your payments to the charges on your account with the lowest interest rate first. If there is money left over after the lower interest rate charges (often the transferred balance), the lender then applies the remaining portion of your payment to higher interest rate charges, such as purchases and cash advances.

It could also be a mistake to close your old credit cards after you transfer balances to the new card. Many experts warn that closing those cards could hurt your credit rating. Leaving them open, at least for a while, is recommended. The availability of revolving credit will look favorable to other lenders, insurance companies, even prospective employers who may review your credit report.

If your old cards charge annual dues or inactivity fees, then you may wish to close those accounts before the charges kick in. Otherwise, it’s best to leave the accounts open for a few months to a year, even if you cut up the cards and are no longer using the credit.

Using balance transfer credit cards to lower your interest and pay off bills is a good choice. Be sure to carefully review the terms of any offer, and use a balance transfer calculator to figure out how much you can save.

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Balance Transfer Step-by-Step

Many people are using balance transfer credit cards as a way of reducing their overall debt. 0% introductory cards are a great way to do this, but be sure you’re taking all the right steps. If you don’t, you could be in for a nasty surprise.

  1. Make sure your new balance transfer credit card will actually save you money. If the introductory period is too short, or the balance transfer fee or interest rate is too high, you may not be saving all that much. Balance transfer credit cards may be a bad idea if you currently have a low interest rate (less than 8.0% APR).
  2. Don’t transfer your balance during the application process. In many cases, your introductory period and the actual interest rate you will pay is dependent upon credit approval. If you don’t meet the creditor’s standards for the best terms, you may not end up saving money on your balance transfer.
  3. There is one exception to the tip above. Some companies offer lower balance transfer rates and/or interest rates if you transfer the balance when applying for the account. If you know for sure you will get the best terms, go ahead and transfer the balance to get the better rate.
  4. Once you know your interest rate and the length of your introductory period, use a balance transfer calculator to determine if the savings are worth the switch.
  5. You may need to wait up to 30 days for the balance transfer to post to your new card. Continue making payments on your old credit card until the balance transfer clears. The late payment fees on your old card will hurt if you don’t make on-time payments until then.
  6. Watch for phantom interest on your old card. Depending on when during the month your balance transfer actually posted, you may have had a balance on the old account for part of the month.
  7. Keep your old credit card accounts open for a while. You may be tempted to close them right away, especially if you are frustrated with the lender or their customer service practices. It’s better for your credit, though, if you keep the account open because it boosts your availability of revolving credit. Other lenders see this favorably because it means you aren’t maxing out your credit cards, which usually indicates you have a better handle on your finances.
  8. Pay off your balance transfer during the introductory period. You could be subject to retroactive interest if you don’t pay it off on time.
  9. Don’t make purchases on your new balance transfer credit card. Lenders have gotten creative with the way they apply payments to your account. Often they pay off the charges with the lowest interest rate first. If your purchase APR is higher than your balance transfer APR, you could end up accruing interest on those purchases until your balance transfer is paid in full.

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Get Out of Debt Faster With Balance Transfer Credit Cards

Since the economic crisis, Americans have started spending less and saving more. Many started getting serious about paying down their credit card debt, using incentive-based methods, such as the snowball method, to get out of debt as quickly as possible. Some have also discovered that it’s easier to pay off debts quickly when you use a balance transfer credit card.

Many credit card users pay interest rates that would make a loan shark blush. They may often be paying fees for late payments and for going over the credit limit when their accounts are maxed out. A simple solution to these problems can be found with a balance transfer credit card.

The idea behind balance transfers is to pay off a balance owed to credit card A by transferring money from credit card B. The savings come in when you reduce the amount of interest you pay by taking advantage of the low introductory rate that can come with a new card.

Several banks are now offering balance transfer credit cards with 0% interest on balance transfers for the first 6, 12, or even 18 months when you open an account. Interest rates for purchases may be different, so review each individual offer and as always, read the fine print.

Transferring a balance from a high interest rate card is the best way to take advantage of balance transfer credit cards. Typically, the bank will charge a balance transfer fee (usually 3% – 5%) to pay off the other account. This should still be less than what you would pay in interest on the other card over the balance transfer period.

To make sure the balance transfer credit card you choose will actually end up saving you money, do some simple math. Use a balance transfer calculator to help you determine how much you could save.

While you’re saving all this money on interest, you should increase your payments to get out of debt faster. Also, many balance transfer credit cards offer the low rate only during the introductory period. Some will charge retroactive interest if you haven’t paid it off when the introductory period is over. Make sure you read the Important Disclosures on the application before you choose a balance transfer credit card.

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Improve Your Credit Rating with Balance Transfer Credit Cards

Having bad credit can affect your life in a number of ways. You could be turned down for a job, refused entry into a club or professional organization, or denied a new car insurance policy if your credit isn’t good enough. There are many strategies for rebuilding your credit. One method involves using balance transfer credit cards.

Balance transfer credit cards became popular before the economic crisis. People with high interest cards would transfer a balance to a new card with a low introductory rate, then pay off the balance before the standard APR kicked in. This is a very successful strategy for getting out of credit card debt, but it can also be good for your credit rating.

It helps to understand how lenders look at your credit report. When you open a new revolving credit account, such as a balance transfer credit card, your available credit goes up.

Others who are considering offering you a loan or other credit see that available revolving credit very favorably. It means you have financial reserves, and might be less likely to file a claim on your auto insurance, for example.

When you get a balance transfer credit card, it’s a good idea to keep the old account open for a while. Simply transferring debt between two lenders doesn’t help you build a positive credit rating, but maintaining a good amount of available credit does.

If you’re using balance transfer credit cards to help you pay off your credit card debt, that will also help your credit rating. By making regular payments on time, you are demonstrating fiscal responsibility. This goes a long way toward rebuilding your credit.

As you pay down that balance on the new card, you will also be opening up more available credit. As you make progress on the balance transfer, you may want to consider closing the old account. This is especially true if the card has an annual fee, or if the lender charges inactivity fees. In the end, you don’t want all that money you saved on the balance transfer getting eaten up by fees.

When you get ready to choose a balance transfer credit card, make a plan to pay it off during the introductory period. Beware of fees and retroactive interest that may be charged if you don’t pay it off on time.

To see how much you could save, calculate how long it would take you to pay off your current card. Then use a balance transfer calculator to see how much you could save.

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42 Blogs Giving Tips for Using a Credit Card Wisely

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Credit Cards can be a great asset to have. When you have an emergency or just want to build your credit, it is nice to have them there. They can become a problem when you do not pay the bill off each month or if you become addicted to using them. Many people have become overwhelmed by the debt that can be charge up by just a few credit cards. Learning to use them correctly is imperative before acquiring any. Here are 45 blogs to help you learn how to use your credit cards wisely and not fall into the debt trap that so many people have become victims to. Try some of these sites to help you learn how to be responsible for your credit cards.

  1. Keeping a good credit score - Use your cards wisely and learn that you don’t have to cut them up.
  2. Credit Cards are good - Learn here how credit cards are not bad if you can learn the tips and tricks to using them wisely.
  3. Out of debt - Here are tips on watching how you use your cards and getting yourself out of debt.
  4. Pros and Cons - Look here at the pros and cons of having credit cards and how to use them.
  5. Tips - Read here to find a few tips on using those cards wisely.
  6. Women and credit cards - Learn here about some wise uses for women and their credit cards. Learn how to keep yourself out of debt.
  7. Right Card - Learn here how to pick the right card for you and how to use it.
  8. Tips - Here you can read on a few tips like not spending more than you can pay off each month.
  9. Paid off - Once you have paid off your cards, learn here the wisest way to use them.
  10. Do’s and Dont’s - Learn the do’s and dont’s of using your credit cards.
  11. Budget - Learning to budget will help you to keep from using your credit card unneccessarily.
  12. Julia - Read about one woman’s story and learn how to use cards.
  13. Be informed - Be informed, protected and other tips on keeping credit card debt under control.
  14. Savvy - Look here to find tips on being a smart, savvy credit card user.
  15. Credit card debt - Read here about some tips to getting rid of the credit card debt you may have.
  16. Holiday shopping - Learn here how to be smart when shopping during the holidays with your credit cards.
  17. Credit card use - Here you can read to find some information on being responsible with your credit cards.
  18. ABC’s - Teaching your children the ABC’s of wise use of credit cards and other accounts.
  19. Landing a job - Using your credit cards wisely can help you land that job you always wanted. Many employers look at credit reports now before hiring.
  20. Cooperate Cards - Learn how to use your business credit cards here.
  21. Simplify your finances - Learn how to use the credit cards wisely while simplifying the rest of your finances.
  22. 4 Reasons - Here are four reasons you should use your credit cards and being smart about it.
  23. 6 Tips - Here are six ways on being smart with your credit cards.
  24. Being Smart - Learning how to be smart when using the credit cards will help keep you out of debt.
  25. Using in College - Learn here how to wisley your credit cards in college and save money.
  26. How to - Here you will find some great information on credit card use.
  27. 7 Tips - Here you can find seven tips on the wise use of your credit cards.
  28. Balance Transfer - Learn here about doing balance transfers on your cards and if they are a good idea.
  29. Managing Debt - Here is how to manage and be responsible with your cards and their debt.
  30. Pay off Monthly - Here you will find tips like this and more to managing your credit cards, so they don’t manage you.
  31. Credit Wise - Learn here how to be wise about your credit choices.
  32. Be careful - Read here how to be careful when using your credit cards.
  33. 8 Tips - Here are eight tips to help you learn how to use your credit cards.
  34. Saving Money - Learn here how to save money while being smart about using your credit cards.
  35. Wise Tips - Learn here how to manage, and spend wisely with credit cards.
  36. Proper Use - One blogger looks at the best way to use your credit cards and pay them off monthly.
  37. Guide - Here you will find a great guide to anything with credit cards, from how to use them to avoiding debt.
  38. Love Cards, hate debt - This blogger tells you how to love your credit cards and watch out for the debt.
  39. Wise to fraud - Here is one way to be smart when using your credit cards to avoid credit card fraud.
  40. Tips and Tricks - Learn about tips and tricks for maximizing the use of your credit cards.
  41. Responsible - Here are a few tips on being responsible for your credit cards and the debt you incur.
  42. Student Cards - One blogger shares tips for students on being responsible when using their cards.

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Tips for Using Balance Transfer Credit Cards

Many people are getting out of debt faster using balance transfer credit cards. Since most credit cards carry high interest rates, and many new cards are offering 0% on balance transfers for up to a year, you could stand to save a bundle by transferring a balance.

To get the most out of your balance transfer, we have a few tips for you:

  • Search online for the best balance transfer credit card offers. Several companies are still offering 0% introductory deals on balance transfers. To maximize your savings, look for the lowest teaser rate you can find.
  • Do the math so you’ll know how much you can save. Don’t forget that most balance transfer credit cards charge a fee for the balance transfer. Usually, this will be around 3% – 5%. Make sure you factor in the fee when calculating how much you will save.
  • Be prepared to pay off the entire balance transferred during the introductory period. Some cards will charge interest retroactively on the entire balance transfer if it isn’t paid off in time, but even without penalties it’s a good idea to pay it off. This will ensure you are maximizing the advantages of balance transfer credit cards.
  • Keep your old accounts open after the balance transfer. Unless your old credit card has an annual fee or inactivity fees, it costs you nothing to maintain the account. We do recommend you don’t use the card, though. Cut it up if you have to, but don’t charge up any new debt. Good availability to plenty of revolving credit will improve your credit rating, so don’t close the old account if you don’t have to.
  • Don’t use the balance transfer credit card for purchases. Many cards have a different interest rate for purchases, and they’ll often apply your payments to the purchases first. This means you’re not paying off your balance transfer if you’re also making purchases. Discipline yourself not to rack up any new debt while you’re paying off your cards.

Once you’ve selected a balance transfer credit card, be sure to keep up on your payments. Most credit cards have a penalty APR that kicks in when the customer goes over the credit limit or makes a late payment. If you end up paying penalty APRs and fees, you stand to lose all the money you saved on your balance transfer credit card.

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What You Need To Know About Your Balance Transfer Credit Card

You’ve heard about balance transfer credit cards. It’s all about moving your debt from one credit card, usually one with a high interest rate, to a different card, often a new credit account with a low introductory rate. We make balance transfers to save money on interest while paying down credit card debt. It makes a lot of sense, if you know what to look for.

First, you need to understand the terms of the low introductory “teaser” rate – the variable interest rate offered by the credit card company. Make sure you read the important disclosures section so you’ll know if the low rate applies only to purchases or also to balance transfers.

Next, be sure you know how long the introductory period is. Some lenders offer a shorter introductory period if your credit isn’t perfect. They should disclose this to you in the application, but some will say it depends on your credit history, and they will evaluate it after you apply. Either way, you have the option of canceling the account (or simply not opening it) if you find out later that the introductory period is shorter than you were looking for.

You should plan to pay off the entire debt during the introductory period. Many banks will charge interest on the transferred balance retroactively if you haven’t paid it off in full by then. If the card application doesn’t state this clearly, be sure to ask your lender how they handle this.

Another important thing to look for is the standard interest rate. This is the rate that will apply after the introductory period. Even a card with a 0% introductory rate doesn’t look so great when the standard rate of 14.99% kicks in after just 6 months. If you don’t find this out upfront, you could be hit with a whopping bill.

The balance transfer fee is another cost you will have to evaluate. Some credit card companies used to offer 0% balance transfer fees, but those offers have recently dried up. Expect to pay anywhere from 3% – 5% on the balance transfer. It may seem like a lot, but it should be less than the difference between your old interest rate and your balance transfer APR.

Lastly, do yourself a favor and find out right up front what the penalty APR is for this account before committing to any new card. Most people don’t plan on having the kinds of problems that trigger a penalty APR, but many wind up in that boat. Know what the rate is, and find out in advance what will cause it to kick in. This could save you a lot of trouble in the long run, if you use this information when comparing offers.

Photo via SeeMidTN.com

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Using Balance Transfer Cards to Pay Down Your Debt

If you are finding yourself lacking in disposable income, you’re not alone. More and more of our disposable income is going to pay for credit card debt these days. One suggestion is to use a balance transfer credit card to help get you out of debt.

According to the Congressional Joint Economic Committee, in March of 2009, the national total for revolving consumer debt (made up mostly of credit card debt) was about $950 billion. In the fourth quarter of 2008, almost 14% of our disposable income went to pay for credit card bills.

Most people seem to be paying down their credit card debt, rather than racking up new charges. For the first time in five years, consumer revolving debt went down between 2008 and 2009. If you’re working to pay off your credit card debt, you should consider a balance transfer credit card.

How It Works

You transfer a balance (in whole or part) from one credit card with a high interest rate to a new card with a lower rate. It might be a “teaser rate” – a low introductory APR followed by a higher standard rate, or it could just be a better offer of credit. Either way, many consumers look to save thousands by transferring a balance from one card to another.

It doesn’t have to be a specially designed account. Your balance transfer credit card won’t look any different from other cards in your wallet. Balance transfer information is typically included in the disclosures of any credit card offer. Usually there is a balance transfer fee of 3% – 5% and sometimes a different APR (often lower) for balance transfers versus purchases.

Let’s use an example. Jane has a $5000 debt on a credit card with a 17.99% interest rate. That means she’s paying in the neighborhood of $900 a year to maintain that debt. If she wants to get out of debt, she can pay more than the minimum each month and eventually see the principle start to dwindle.

The problem is that interest rate. Let’s say Jane’s minimum monthly payment is 2% of the balance, or $100. At that rate it will take her 93 months to pay off the debt. That’s almost eight years!

Let’s say Jane doubles that payment each month, and it only takes her 32 months to pay off the card. She will still be paying $2,913 in interest. With a balance transfer credit card at 9.90%, it will still take Jane around the same amount of time – 29 months – to pay off the debt, but she will have paid just $1,265 in interest. The balance transfer saved her $1,648.

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Five Steps to Getting the Most Out Of Your Balance Transfer

Many people find themselves drowning in credit card debt these days. It’s easy to do with so many demands on our time and attention, especially when using a credit card seems to offer an instant solution. That instant gratification can come at an extremely high price, though, if you get behind on your bills and end up over your credit limit and get hit with a penalty APR of 29.99% or higher. This is when a balance transfer credit card might be a good idea.

Transferring a balance from an old card to a new one with a lower interest rate can work well if executed properly. If you fall back into your old routine of maxing out your limit, though, a balance transfer could work against you. Let’s walk through the steps to make sure that doesn’t happen.

  1. As soon as you open the new credit account, cut up your old card immediately. You don’t want to rack up more charges right now. After all, you’re getting a balance transfer to help you pay off that debt.
  2. Cut up your new card as soon as it arrives in the mail. That’s right, you won’t be using it for purchases. Many balance transfer credit cards have different rates for purchases, and they may be higher. Also, some balance transfer cards apply your payments to purchases first, meaning you’re not paying off that balance.
  3. Compare rates on different balance transfer cards. Many are offering 0% interest for the first 6 – 12 months, depending on your credit history. Almost all of them will charge a balance transfer fee of 3% – 5%. Don’t be alarmed. You should be saving more than that on interest during the first year if you got a good interest rate.
  4. Keep the account open on your old card for a while after you’ve made the balance transfer. It will help your credit because it improves your credit ratio (the amount of available credit you have in your name). After a few months, you may decide to terminate the old credit account, especially if they charge any annual fees or inactivity charges.

Make a commitment to pay off your balance transfer card as quickly as possible. Try to pay it off before the introductory rate expires, if possible. If not, you may end up paying retroactive interest and fees on the balance you transferred, and you might not end up saving any money at all.

Photo via Galileo55

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Making the Most of Balance Transfer Deals

Many banks are still offering good deals on balance transfers. We’ve even seen some that are offering 0% interest for a full 12 months for people with the best credit. Want to know how to make the most of your balance transfer? We’ve got you covered with the details.

Introductory rates

The first thing you’ll want to look for is a good introductory rate. Obviously, the lower the APR, the better your credit will have to be. Many banks offer tiered interest rates for average, good, and excellent credit customers, so you might not find out what interest rate you’ll be charged until after you’ve been approved for the card.

Balance transfer fees

The next thing you’ll want to pay attention to is the balance transfer fee. This is the fee charged by your credit card company just for taking on the debt, typically around 3% – 5%. Usually, this fee pays for itself over the first year with the money you save on interest during the introductory period.

For instance, if you have an outstanding debt of $5,000 at 19% interest and you transfer it to a new card with a 0% APR for the first 12 months, even if you pay a balance transfer fee of 5%, you’re still saving 14% on interest during that first year. That’s a savings of $700.00. If you use it to pay down your debt, then you’re even further ahead of the game.

Look over the fine print

Whenever you’re shopping for a new credit card, it pays to read all of the information – especially the fine print – up front. Check to make sure you don’t have to make minimum purchases to keep your interest rate the same on balance transfers. Some banks have been known offer a 0% APR for the life of the balance, but they require that you make minimum monthly purchases.

How payments are applied

You’ll also want to make sure the creditor is applying your payments to the balance transfer first. Some lenders apply some or all of your payment to the portion of your debt with the highest interest first while others don’t. Be sure to read the credit agreement right away. If the lender has this kind of practice, just don’t charge any purchases on the new card until the balance transfer is paid off.

The best deals on fixed interest for the life of the balance will obviously go to those with the best credit. That doesn’t have to put you out of the game, though.

Shop around for the best deals you can find, then call up your current creditor with a proposal. Banks have to spend money to get each new customer. If they think they might lose you, they may try to meet or beat one of the better deals you find.

Photo via LizMarie

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