Yahoo Finance 7 Things to Consider Before Getting a Balance Transfer Credit Card
Credit cards allowing balance transfers can often save you a great deal of money in interest. However, if you're not careful, they can also end up costing you a great deal of money. If you are debating whether or not you should transfer a balance from another credit card or loan, it's important to consider some key factors.
1. Introductory APRs
One of the best times to transfer a balance is during promotional periods for 0 percent introductory APRs, or "teaser rates," often offered to new cardholders. These offers typically allow you to transfer a balance at 0 percent interest for periods ranging from nine months to as many as 15 months or more, depending on the credit card issuer. This free period is intended to entice consumers to make the switch by helping them save money on interest for a limited time. It can be especially helpful if transferring balances from loans or credit cards with high APRs.
2. Paying down the balance
Consider how you plan to pay down the balance you are transferring. If you are taking advantage of a special promotion, ask yourself if you can pay down the balance completely within the promotional period. For example, many credit cards offer lower APRs and 0 percent periods for 15 months before charging interest, but if you aren't positive you can pay down the balance during that time, you could end up paying more in the end. There are also special financing offers that require payment in full before the promotion ends in order to take advantage of the no-interest offer. If you don't pay the entire balance in full, you could end up responsible for all interest that would have accrued during the promotional period.
3. Balance transfer fees
While credit cards often provide low introductory APRs for balance transfers, usually you still have to pay a balance transfer fee. This fee can be as little as $10 or 4 percent of the transfer, whichever is greater. There are a handful of credit cards that waive the balance transfer fee for new card holders. However, in exchange, you may not receive a 0 percent introductory APR. You'll need to calculate the cost difference between paying a balance transfer fee and taking advantage of a 0 percent introductory APR.
4. APR
One of the most important factors to be aware of when transferring a balance is the APR on the loan or card you are transferring from, as well as the APR on the card receiving the transfer. The primary purpose of transferring balances is typically to save money on interest payments. It is important that you transfer to a card with a lower APR in order to save the most money. If you aren't sure about the APR, ask both card companies before transferring.
5. Credit score effects
You'll need to consider your credit score before even attempting to transfer a balance. If you have had credit problems in the past, you may not qualify for a credit card with a decent balance transfer APR or sufficient credit line. Frequently transferring the same balance from card to card also can have a negative effect on your credit score and eventually result in being denied future promotions when you really need them. At the same time, however, the original account will appear as though it has been paid in full, which can bring your credit utilization ratio down. The credit utilization ratio is the percentage of total available credit you have across your accounts. A low ratio reflects positively on your credit reports.
6. Card use after the transfer
When transferring balances, it's important to consider not just the transfer itself, but how you plan to use both cards after the transfer. For instance, do you plan to continue using the card you transferred from, or will you close the account? Before making a decision, weigh factors such as how long you have had the account before the transfer and whether closing it will negatively affect your credit rating. The average age of your accounts is one component of your credit score. Therefore, having an old account could help your credit history. On the other hand, if you keep the account open and continue to use it, you may not have an opportunity to transfer the balance from that account again in the future.
7. Credit limits
Not only do you need to make sure you receive a credit line high enough on your new card to cover the balance transfer, but you also should consider whether the credit limit could impact your credit score. Your credit utilization ratio contributes to your overall credit rating significantly, and transferring a balance to a card with only enough room for the transfer itself can leave you with a maxed out account. If you don't qualify for a higher credit limit, it might be in your best interest to work on repairing any credit issues and paying down the balance on the original account until you can get that higher credit limit.
Greg Go is the co-founder of Wise Bread, an award-winning personal finance and credit card education blog, where you can find tips on how to find the best travel credit cards.
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