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Transferring Balances..hope this helps!
Is transferring balances a good move? This is a question many credit card holders ponder when they start to accumulate debt on a high interest rate card (and rightfully so, the monthly interest charges alone on a $2000 balance with an 18% rate is around $30) The problem is many jump on the first 0% balance transfer without looking at the terms of the deal. Here are a few things to look out for when trying to decide on a transfer strategy.
1.) Check out the time allotment for this transfer, some 0% offers are for as little as 3 months, and when that time is up you will be hit with high interest rates once again. Some cards offer up to 15 months to pay off your balance before the rate goes up. Once you decide to take an offer make sure to set a budget and get that card paid off before the time is up.
2.) Check on the balance transfer fee. In most cases 0% offers will have a fee ranging from 2%-4% of the balance, with a minimum normally around $35 and a maximum of around $85. Using the $2000 example above that fee would be around $40-80. If you plan on paying off your balances quickly there may be better alternatives.
Along with making sure you are getting the best deal, there are also some pitfalls to be aware of.
1.) Do not be late. In most cases credit cards will jack the interest way up from that 0% if you are late even once and even if it’s only a few days. Get those payments in early!!
2.) Even though it is rare these days make sure they do not backcharge interest if you do not get the balance paid off within your allotted time frame. Most major cards do not do this, but it is not unheard of.
3.) Do not use the card while you are paying off the balance. The new charges you make are normally charged a higher interest rate, and your monthly payments will not be applied to these charges. Until the 0% balance is paid in full all your payments will go to pay off the 0% balance, while all your new charges are getting a much higher interest rate.
4.) If you are doing this to improve your credit rating, then weigh your options when getting a new card, because getting a new credit card in most cases hurts your credit rating (at least initially). If you are transferring between existing cards it’s not as big a deal, but getting a new card hurts your credit because when you apply there will be inquiries on your credit rating and you will now have more available credit, which some lenders don’t like to see a lot of.
There are always alternatives if you don’t like the fees or if you just don’t have good enough credit to get 0% offers.
1.) I recently reviewed my alternatives on transferring a $2000 balance between 2 existing cards I have and found that taking a lifetime 6.9% APR with no transfer fee was better than paying a $70 fee for a 1.9% interest rate over the next 9 months. Keeping it on the existing 16% apr was obviously not what I wanted to do, but after looking at the cost, and knowing I would have it paid off in 4-6 months it turns out the slightly higher interest rate was a better deal.
2.) Suck it up and pay off that card. There is no point in carrying high interest rate debt if you have any feasible way of paying it off. Sit down and devise a budget and figure out how you can get that card paid off ASAP. If it is extremely bad there are debt services out there that will work on your behalf with credit card companies to drop the interest rates of your cards and help you set up a payment plan. This will most likely hurt your credit in the short term and you will most likely lose the ability to use those cards, but in the long run it could save your financial future.
I hope this post has been informative, I will be more than happy to answer any posts with questions.
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