If you have credit card debt, transferring a balance to a new card can give you a chance to catch up on your payments without sinking further into debt under the weight of outrageous interest rates. But it isn’t always the best move, and it could even make your financial situation worse. Here are a few questions you should ask yourself before you transfer a balance.
What are the fees?
If you’re looking to transfer your balance to a new credit card, you should choose one that offers a 0% introductory APR on balance transfers. The length of time of this introductory period will vary, usually somewhere between six and 18 months from account opening. This gives you the opportunity to pay off the balance without accruing more interest. Keep in mind, though, that any new purchases you make with that card will be charged interest if you can’t pay them off in full each month.
Even if you’re not being charged interest right away, there may still be fees associated with transferring a balance. This could be a flat dollar rate or, more commonly, a percentage of the amount transferred. So if you were transferring a $10,000 balance and it had a 3% balance transfer fee, your new transferred balance would stand at $10,300. Calculate how much it would cost you to transfer the balance and decide if this is worth it.
Will I be able to pay off my debt before the introductory APR period ends?
Once the 0% introductory APR period is over, any remaining balance will begin earning interest at the card’s standard rate. You can find this information in the cardholder agreement. If you’re not confident in your ability to pay off the full balance before the introductory period ends, you will end up back in the same position you started in with one more credit card in your wallet. Depending on the interest rate on the new card, you could even end up worse off.
Calculate how much you can afford to pay each month and make sure that you can pay the full balance within the introductory period. If not, figure out how long it will take you to pay off what’s left at the standard interest rate and compare that to how long it would take you if you stuck to the credit card you already have to decide if it’s worth it.
Am I going to rack up more debt on my old credit card?
Transferring a balance to a new credit card will do you little good if you plan on continuing to spend beyond your means. In that case, you’re better off leaving your debt where it is. The temptation of having more credit available to you could cause you to accumulate even more debt than you had to begin with.
For a balance transfer to be worthwhile, you have to be serious about paying down your debt. In addition to choosing the right balance transfer card and making regular payments, you may also have to make some lifestyle changes, like curbing your spending, so you don’t end up carrying a balance again.
What are my alternatives?
There may be other ways you can pay off the debt without transferring a balance. You may be able to cut back your spending so you have more to put toward your credit card debt each month. You could also try selling some of your belongings, working overtime, or picking up a side job.
You may also want to consider getting a personal loan to consolidate your debt. Unlike credit cards, you won’t find any 0% introductory APRs among debt consolidation loans, but depending on your credit, the standard interest rate could be much more affordable than what your credit card is offering you.
The average credit card interest rate is 17%. If you have good to excellent credit — about 680 or better — you shouldn’t have any trouble finding a personal loan that will offer you a 15% interest rate or better. Plus, then you’ll have a set monthly payment and you won’t have to worry about the debt continuing to accrue interest.
Transferring a balance is one way to pay down debt, but it’s important to sit down and do the math to figure out if it’s actually your best move. If not, you could find yourself right back at square one.
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