5 Mistakes You Can Make With a Balance Transfer Credit Card

The average credit card interest rate is about 20%, and these high rates make it increasingly difficult for Americans to pay off their credit card debt. It's no wonder why late credit card payment numbers are inching higher.

Transferring some or all of your credit card debt to a balance transfer card can be a great way to get on top of payments because of their low interest rates. Many balance transfer cards offer 0% APR for 12 months or longer, and you can often transfer thousands of dollars to the new card.

However, opening a new credit card account when you're already in debt can be risky. Here are some common mistakes people make with a balance transfer card and how to avoid them.

1. Making late payments

Late payments should always be avoided because they hurt your credit score. Payment history accounts for 35% of your FICO® Score, and late payments can stay on your credit report for up to seven years.

However, a late payment on a balance transfer card is even worse because you could lose your low introductory percentage rate. This means you might have to pay interest on the amount you transferred and any new purchases you make with the card.

It's essential to set up automatic payments on the balance transfer card so you don't miss payments and potentially worsen your finances.

2. Adding to your credit card debt

A balance transfer card can help you catch your breath on your credit card payments by temporarily lowering the interest rate so your debt doesn't continue to grow.

But it can be tempting for some people to use the balance transfer card for everyday expenses because it has a low or 0% interest rate. Doing this will only add to your debt obligations and make it even harder to pay off the balance once the introductory interest rate expires.

You can avoid this dilemma by not using your balance transfer card to pay for any new purchases. Once you've transferred your balance to it, stick the card in a drawer and keep it there. Then, set up automatic payments to begin paying down the balance.

3. Overlooking the balance transfer fee

Balance transfer cards typically charge a fee -- usually between 3% and 5% of your total balance -- to transfer your balance to the new card.

This means if you transferred $5,000 to a new balance transfer card with a 3% transfer fee, you would pay a $150 fee, and your new balance would be $5,150. It's worth mentioning that some cards may increase your transfer fee to 5% after an initial 3% transfer fee after a few months.

If the card offers a 0% intro APR, paying the balance transfer is likely worth the cost. But it's still important to know what the fee could increase to if you make additional transfers later.

4. Not paying off the balance during the introductory period

Not everyone's debt situation is the same, but if you're transferring some of your credit card debt to a 0% APR card, your goal should be to pay that balance off before the high APR kicks in.

Many transfer credit cards offer a low introductory rate for 12 months to 21 months. Let's assume you transferred $5,000, paid a 5% fee, and didn't pay off that amount during your introductory period, so you now have $5,250 on the card at the end of your promotional period.

Assuming you have to pay the current credit card average APR of about 20%, this means at the end of your introductory period, you'll start spending nearly $87 in monthly interest (of course, this will vary depending on your monthly balance). This means you could be in a potentially worse financial position than you were before.

5. Continuing to use your old card

There isn't much point in transferring your old credit card balance to a new card if you continue using the old card and adding to your overall debt.

I recently paid off some credit card debt, and one of the first steps I took was to stop using my credit card. Doing so helped me have a fixed total that I could see getting lower as I made payments against the debt.

If you sign up for a balance transfer card, it's a good idea to completely stop using your old card and rely on cash or a debit card. If not, you could quickly rack up more debt on your old card.

The best way to use balance transfer cards

Balance transfer cards can be useful tools for lowering your interest rate and allowing you to chip away at debt without having interest accumulate every month.

But you need a plan in place to make it happen. Consider using a credit card payoff calculator to determine how long it will take you to pay off your balance. If it will take longer than your intro APR period, calculate how much interest you'll pay when the higher APR kicks in.

Doing the math upfront will help you create a clear payoff plan and better understand whether a balance transfer card is right for you.