Carrying a balance on a high interest rate credit card can result in the unnecessary waste of hundreds or even thousands of dollars each year. Many people have tens of thousands of dollars of credit card debt spread out across multiple accounts. Finding an effective way to reduce debt balances and eventually to be free of the burden of credit card debt is a top goal for many people. While there are different debt reduction and elimination strategies available, one idea is to take advantage of a balance transfer offer. Many balance transfer offers have a zero percent interest rate or otherwise a low interest rate offer for an introductory period. This period may range from less than six months to more than 12 months in some cases. With one of these offers, most or all of your credit card payments would be allocated directly toward principal reduction. You would notice your balance decline very quickly with regular payments. However, before you rush headfirst into a balance transfer, keep these tips in mind.
Pay Attention to the Current and Future Rates
Balance transfer offers typically have an introductory rate as well as a rate that will be reverted to after the introductory period has expired. In a best-case scenario, you will pay off the entire balance within the low interest rate period, but this may not happen. Understand what will happen to any remaining balance owed. For example, will the new interest rate only apply to any balance not paid off by the expiration date, or will back-interest be charged?
Check Your Approved Rate
Many people who intend to take advantage of a balance transfer offer will open a new account rather than transfer funds to an existing account. With a new account offer, you may see a teaser rate that sells you on the idea of applying. However, the low interest rate promised may not be the actual interest rate that your account is approved for. After you get details about your new account, review the fine print and interest rate. The last thing that you want is to transfer your debt to an account that has a significantly higher interest rate than what you expected.
Create a Reminder for the Introductory Rate’s Expiration Date
Balance transfer offers traditionally have an expiration date for the introductory period. After this period of time, the rate may escalate dramatically. You need to be aware of what will happen when the introductory period expires. More than that, you need to focus on the expiration date. Some people may be agreeable to paying a higher interest rate on a small amount of remaining debt. Others may decide to transfer the outstanding balance to another account with a great balance transfer offer. If this is your plan, remember that you typically cannot transfer balances to a new account that is held by the same financial institution.
Focus on Balance Transfer Fees
Balance transfers are not usually available free of charge. Most financial institutions charge a percentage-based fee tied to the amount transferred. There is usually a minimum fee charged for this type of transfer fee arrangement. In other cases, a flat transfer fee is charged regardless of the balance. In many cases, the transfer fee is well worth paying for and may be recouped in the first month through savings on interest charges. However, this is not always the case. Understand the cost of transfer fees up-front so that you can make the most informed decision possible about how to manage your accounts.
Pay on Time Without Fail
Most balance transfer offers have fine print that talks about what happens if you are late with even a single payment. Education benefits pay off in this area. For example, if you make even one payment more than one day past due, your interest rate could revert to the standard rate. In some cases, it may go higher than the standard rate. Remember that many credit cards have a grace period of a few days or longer. However, the grace period does not typically apply to the terms of a balance transfer. Make plans to make your payments in full at least a few days ahead of time to avoid having to deal with an expensive rate hike.
Understand the Effect on Your Credit Rating
If you intend to use a balance transfer from a new credit card account, be aware that your credit rating may decline for the short term. This is because credit scores are partially based on the age of your accounts. If you close your old accounts, your credit scores may also decline, and this is also related to the age of your accounts. While there may be short-term downsides to consider, the ability to pay off large amounts of revolving debt within a very short period of time may help you to increase your rating over a longer period of time. Be careful not to charge a new balance onto the account that now has a zero balance. If you don’t want your credit to be affected at all then try using a title loan online in stead of a credit car. Its quick and easy to apply for one.
Credit card balance transfers are a common way for individuals who have high balances on high interest rate accounts to try to make a dent in their debts. However, you can see that there are some pitfalls that you should watch out for if you want to avoid creating a worse financial situation than you are currently in. Pay close attention to these points as you proceed with a balance transfer.