Published in: Credit Cards | Oct. 22, 2018

4 Questions to Ask Yourself Before Transferring a Credit Card Balance

Do you have high interest debt? If so, you may be interested in transferring a balance.

Pile of credit cards

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Typically, a balance transfer involves obtaining a credit card with a special low promotional rate, such as a card offering 0% interest for 12 months or for 18 months. You move the balance of other debt to the new credit card so you can reduce the interest you pay.

Transferring a balance makes a lot of sense for many borrowers. If you can lower your interest rate, you can make debt repayment much more affordable. But, that doesn't mean transferring a balance is right for you in every situation. Before you transfer a balance, ask yourself these four questions.

1. What is the fee for the balance transfer?  

Most balance transfer credit cards charge you a fee for transferring a balance. This fee is typically around 3% to 5%.

Even with paying the fee, you can still achieve savings if you're able to significantly lower your interest rate. However, you need to be aware of the fee when you calculate how much you save by reducing your interest rate through a balance transfer.

You also need to take any fees into account when determining how large of a balance you can transfer. If you have a $10,000 credit line but you'll have to pay a 3% fee to transfer your balance, you can't actually transfer $10,000 worth of existing debt. If you tried, the 3% fee would result in a charge of $300 and you'd be $300 over your credit limit.

There are some balance transfer credit cards that do charge nothing to transfer a balance -- but you'll need to research offers carefully to find the best card for your situation.

2. What is the promotional rate?   

Typically, balance transfer credit cards offer 0% for a limited time period. If the card you're considering charges more in interest, you should look for a different balance transfer card.

You want to make sure the savings in interest from transferring the balance is worth the effort and, as long as you have a reasonably good credit score, you should have no problem finding a card that will allow you not to pay interest for a period of time.

Make sure, too, that the card specifically charges 0% interest on balance transfers. Some cards offer a different promotion where they charge 0% APR on purchases -- but a balance transfer isn't a purchase and this kind of card won't do you any good if the goal is to move money to the new card in order to lower the interest rate on your debt.

3. Will I be able to pay off the balance before the promotional rate expires?  

The promotional rate on balance transfer credit cards doesn't last forever. You may have six months, nine months, 12 months, or 18 months at 0%, depending on the card. When the promotional rate ends, the interest charges on any remaining balance on the card can jump up dramatically.

Ideally, you'll want to have your debt paid off by the time the promotional rate expires. You should calculate how much you'd need to pay each month to achieve this goal. For example, if you were transferring a $12,000 balance on a card with a promotional rate of 0% for 12 months, you'd need to pay $1,000 monthly to get your card paid off in full.

If you can't pay off the balance before the promotional rate expires, you may end up paying a lot in interest -- and in fact, could end up paying more than you would've if you transferred lower interest debt to the card (such as personal loan debt) and took a long time to pay it off after the promotional rate ended.

While you may be able to transfer the balance again at the end of the promotional period, there's no guarantee you'll qualify for a new balance transfer card. So, you're taking a big risk if you're going to owe a lot at the end of the promotional period and the interest rate after the 0% expires is higher than the rate you're currently paying.

4. Do I have my spending under control?  

There's another big risk to transferring your balance to a new credit card -- you open up more credit for yourself to use. If you don't have your spending under control, you could find yourself charging those cards up again.

This would mean you once again owe lots of high interest debt -- and you now have an additional debt to pay off on the balance transfer card.

To avoid this, make sure you have a spending plan in place, make a budget, and commit to not using your credit cards that you free up by transferring their balances -- at least until your debt is paid off. If you aren't confident you won't get yourself further in the hole by transferring your balances, you may want to hold off until you're able to be more financially responsible with your credit cards.

Transferring a balance can save you money if you're smart about the process

Transferring a balance can undeniably be a good financial move if you find the right balance transfer offer and you make a plan to repay the debt you owe once your balance has been transferred. Just make sure to do your research, know how to get the debt paid off, and avoid charging up your cards again and you can reap the benefits of a balance transfer without the downsides.

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