Top Five Biggest Balance Transfer Mistakes
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
But if you have a pretty good credit score, a balance transfer could be an option that might help you pay down your credit card debt faster. Here’s how it works: You transfer the balance on your high-APR credit card to a balance transfer credit card that offers a zero percent introductory rate, which can last for six months to 18 months. You get to pay off your debt while paying zero interest for the introductory period.
Sounds awesome, right? It can be. But to pay down your credit card debt once and for all, you need to avoid the five most common balance transfer mistakes.
Mistake #1: You stop making payments on your old card too soon.
With a balance transfer credit card, your new credit card issuer will pay off the balance on your old credit card. However, the process can take three weeks or more.
If you stop making payments on your old credit card account too soon, you could end up making a late payment and incurring a late fee. Even after your new bank confirms that the transfer is complete, hop online and check the balance on your old credit card to confirm it’s zero.
Mistake #2: You don’t have a plan for paying off your credit card debt.
A balance transfer with a zero percent intro rate is a golden opportunity to get out of debt while saving on interest. If you don’t calculate your monthly payment, though, you could still be in debt when the intro rate ends.
Here’s an example of how to calculate your monthly payment:
Let’s say you’ve opened a balance transfer credit card that offers you an 18-month zero percent intro rate, and you want to transfer a $5,000 debt to your new card. The card has a 3 percent transaction fee. First, add the transaction fee to your original transfer amount, which makes the total $5,150 (5,000 x .03 = 150).
Occasionally, a card issuer will waive the transaction fee, but if you pay the fee, it must be included in your monthly payment calculation.
Next, divide that amount by the number of months in the intro period to calculate your monthly payment ($5,150/18 = $286.11). This is the amount you need to pay each month to pay off your credit card debt within the intro period.
Mistake #3: You use your balance transfer card for new purchases.
If you want to pay off your debt within the intro period, you must vow that you won’t make purchases with your new balance transfer card. Remember that monthly payment you just calculated? If your debt grows, that monthly payment won’t be enough, and you’ll wind up with a balance when the intro rate ends.
Plus, unless your new card also offers a zero percent intro rate on purchases, you could be charged interest on your new purchases if you carry a balance on those items.
Mistake #4: You make a late payment and lose the intro rate.
Your credit card agreement’s fine print usually specifies the circumstances that can cause you to lose your intro rate. In some cases, if you make a payment that’s one day late, you lose your intro rate. In other cases, you don’t lose your intro rate unless you’re over 60 days late, but you lose the intro rate and get stuck with a 30 percent penalty interest rate.
Do whatever it takes to pay your bill on time. Set calendar reminders on your smartphone, or set up automatic payments from your checking account.
Mistake #5: You close your old credit card account.
One of the factors the credit reporting agencies use to calculate your credit score is your credit utilization ratio. This is the amount of credit you’ve used compared to the amount of credit you have available. When you close a credit card, you lose the available credit associated with that card and your utilization ratio goes up. When your utilization ratio goes up, your credit score can go down.
Unless you have a problem with compulsive spending, I recommend keeping your old credit card account open. But don’t use your old card for new purchases. If your goal is to get out of credit card debt, step away from all of your credit cards and don’t use them until you are debt free.
Beverly Harzog is a nationally recognized credit card expert, consumer advocate, and the author of Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. She runs a popular credit card blog on her website, www.BeverlyHarzog.com.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.