Have you recently received a 0 percent APR balance transfer credit card offer? While you might have heard that these transfers are a great way to save money on interest while paying down your debt, it’s important to use caution to ensure that you’re not actually losing money on the deal. Here are six tips to keep in mind if you’re considering saving money with a balance transfer.
1. Do the Math
The only way to determine whether you’ll save money on a balance transfer is to calculate using the among of debt you’re transferring and the terms of the new car. Read the fine print to make sure you’re taking fees into account. Most balance transfer cards charge a fee of three to five percent, so when transferring $5,000 you’ll be subject to a fee of $150 to $250. And while the introductory APR on your new card is zero percent, it will readjust after a specified period (often a year). Balance transfer calculators online make it easy to see if a given scenario is worth your while.
2. Take Advantage of the Respite
The most effective way to use balance transfer cards is by using the introductory rate as a respite to pay off your debt more quickly while accumulating less interest. If you continue to make only minimum payments, you’ll still be in debt when your interest rate rises again–often higher than the APR on your original card, meaning you’re financially worse off than when you started.
3. Never Miss a Payment
“In most cases, the fine print of your credit card agreement states that you forfeit the introductory rate if you pay your minimum payment even one day past the due date,” said Finance Globe. If that happens, you’ll almost certainly increase your total debt rather than pay it off. And never run up additional debt on your new card, which will put you in the hole even further.
4. Stick to One Transfer Only
While it might seem like a good idea on the surface to transfer your balance to yet another 0 percent interest card after the introductory period ends, doing so can lower your credit score by making you look like a risky prospect to lenders. In order to ensure you can qualify for large purchases like a house or car in the future (without exorbitant interest rates), do your best to pay off the debt during the introductory APR period.
5. Find the Right Card
Balance transfers work best when you find a credit card with favorable terms, which usually means you have good to excellent credit, according to Nerdwallet.com. If you have lower credit, try improving it by making payments on time before applying for a balance transfer. When you’re ready to move forward, look for a card that has a long introductory period (some are even up to 15 months) and no balance transfer fees.
6. Shop Around
While balance transfer offers were once ubiquitous, they became less available during the credit crunch of the late 2000s. According to a 2015 article in the New York Times, banks will compete with each other to get your business as these types of offers once again gain popularity. That means that you can compare and contrast offers between multiple companies and use them to negotiate the best possible terms.
Although smart consumers can certainly save on their credit card debt and pay balances off more quickly by using a 0 percent balance transfer offer, following these steps closely can help ensure that you don’t end up losing even more money and getting deeper into debt in the process.