Credit card debt is a serious financial problem. The average interest rate on credit cards is a staggering 22.76%, according to data from the Federal Reserve. Because of how high the rates are, credit card debt is difficult to pay off and can cost you a lot of money in interest.
A balance transfer card can be a powerful tool for getting out of debt. This type of credit card has a 0% introductory annual rate for balance transfers, giving you time to pay off what you owe without interest. If you’re thinking about getting a balance transfer card, beware of the following costly mistakes.
1. Balance transfer takes too long
After you get a balance transfer card, you should transfer your balances right away for several reasons. First, the 0% introductory APR is temporary. If your card has a 0% introductory APR for 18 months, it makes sense to use as much of that period as possible to pay down your debt. If you wait three months to make your balance transfers, you’ll lose three months when you could have been avoiding interest charges.
Many balance transfer cards set a time limit for qualifying balance transfers. For example, the 0% introductory APR may only apply to balance transfers made in the first 60 or 120 days. If you make a transfer after that, you won’t qualify for the 0% introductory APR.
The balance transfer fee can also depend on when you make balance transfers. Some cards charge a 3% introductory balance transfer fee for transfers made in the first 60 or 120 days. After that, the fee goes up to 5%. For a $5,000 debt, that’s the difference between paying $150 and $250.
2. Get a balance transfer card from the same card issuer where you have debt
Credit card companies typically don’t allow you to transfer a balance from one of their cards to another. Let’s say you have a balance on a Bank of America credit card. You could transfer it to a Wells Fargo or Chase card, but not to another Bank of America card.
This can be tricky if you have balances spread across multiple cards from different issuers. Fortunately, there are plenty of cards with a 0% introductory interest rate for balance transfers. If you need help finding one, check out The Ascent’s list of the best balance transfer credit cards.
3. Make only minimum payments
A balance transfer is a great opportunity to pay off debt. When you are not charged interest, you can pay off debt faster and at a lower cost.
Not everyone takes full advantage of this benefit. Some people relax once they have transferred their balances and are not charged interest. Because their debt doesn’t cost them money, they lose the sense of urgency to pay it off. They don’t pay as much as they could and may even start spending more on their credit cards.
A balance transfer card only benefits you if you use it to make progress on your debt. Pay as much of your debt as you can during the 0% introductory annual rate (APR) period. The best-case scenario is that you pay off your debt before the introductory period ends. If you can’t do that, at least pay off as much of it as possible.
If you have credit card debt and can qualify for a balance transfer card, it makes sense to apply for one. A 0% introductory APR is the best you can get and is much lower than what most credit cards charge. Just make sure you get a balance transfer card from a different card issuer than your current cards, transfer your balances right away, and pay off as much of your debt as you can during the 0% introductory APR period.
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