Balance transfers have some benefits, like allowing you to take advantage of a lower interest rate. But, they also have some disadvantages, like the balance transfer fee and possibly an annual fee. To make sure you're getting the most from a balance transfer, get the answers to these eight questions before you move your credit card balance to a new credit card.
Do you have a credit card with available credit?
If you try to transfer balance to a credit card that doesn’t have enough credit, you could end up going over the limit. This could result in over-limit fees and could trigger the default interest rate.Do you qualify for the promotional rate?
Just because you receive a pre-approved offer for a low introductory balance transfer interest rate doesn’t mean you actually qualify for that rate. You typically must have excellent credit get a low balance transfer interest rate. Don’t make any assumptions. Check with the card issuer to find out what you need to do to get the best interest rate.When does the promotional offer end?
Starting February 22, 2010, any promotional interest rate must last at least six moths. Until then, card issuers can set the promotional rate as they please. Before you move your balance, make sure you know when the promo rate will end so you’re not surprised when the new rate takes effect.What will the post-promotion interest rate be?
When the introductory interest rate expires, your regular balance transfer interest rate could skyrocket. If you haven’t paid off your balance transfer, your monthly finance charges will increase. They could even be higher than they were before you transferred the balance.How long will it take you to pay off the balance?
Do you have a plan to pay off your balance transfer? Or are you just moving the balance because you want to get a low interest rate for a few months? Transferring a credit card balance is better when you can pay the balance off within the promotional period. If you can’t pay it off soon, try to pay it off shortly after the promotional period ends. The longer it takes to pay off your balance transfer, the more you’ll pay in interest charges.Will the balance transfer save you money?
Don’t assume that a low introductory interest rate means you’ll save money overall. You still have to pay the balance transfer fee and any annual fee charged by your new credit card. You can use a balance transfer calculator to determine whether you’ll actually save money by transferring your credit card balance.
Does the new credit card already have a balance?
If you’re transferring to a credit card that already has a balance, it could take you longer to pay off the balance transfer. Credit card issuers currently apply any above-minimum payment to the balance with the lowest interest rate. That will work in your favor if you have a promotional rate. However, it will work against you if your balance transfer has a higher interest rate. As of February 22, 2010, credit card issuers will be required to apply above-minimum payments to balances with higher interest rates which will help you save money.How high will your credit utilization be after the transfer?
Your credit utilization impacts 30% of your credit score. If the balance transfer will result in a credit card balance that’s more than 30% of your credit limit, your credit score can take a hit. Before you move your credit card balance, check to make sure your credit score won’t be hit. Fortunately, a high credit utilization will be corrected as you pay off your credit card balance.
