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Woman pondering whether to do a credit card balance transfer or not

When determining strategies to pay offer credit card debt more quickly, you will likely consider the option of a credit card balance transfer. Transferring a balance from a high interest credit card to one with a lower interest rate can help you pay off your balance faster, because more of your payment will be applied to the principal, rather than interest.

It’s a straightforward concept that can help you reach your financial goals when done correctly. However, it isn’t the right decision for everyone, particularly if you already have overspending issues. Here are several things to take into account before committing to a credit card balance transfer.     Woman pondering whether to do a credit card balance transfer or not

Will you qualify for the lowest interest rate?

A balance transfer will only save you money if you can transfer the balance to a card with an interest rate that is significantly lower than the current card. If your credit isn’t quite up to snuff, you may not qualify for a card with a lower rate. And remember, every time you apply for a new card — even if you’re not approved — it can potentially have a negative effect on your credit score. Be sure to check your score before you apply for a new card so you have a better idea of what to expect. Some creditors provide a free credit score and simulator as part of their service. The simulator allows you to see the positive or negative impact on your score based on future behaviors.

Do you know there might be fees involved?

You’re probably familiar with the phrase “there’s no such thing as a free lunch.” Well, the same applies to balance transfers. Transferring a balance from one card to another almost always comes with a balance transfer fee. According to Nerd Wallet, the average balance transfer fee is 3%-5% of the total balance. Depending on the size of your balance, that can be a sizable chunk of money. Now, that’s not to say you should let a balance transfer fee deter you from the idea of a balance transfer. Just be sure to keep that fee in mind when doing the math on how much you stand to save.

Can you pay off the balance before the low interest rate ends?

All good things must come to an end, and that will likely include your new, lower interest rate. Balance transfer offers always come with a time limit—usually 12 to 18 months. While that might sound like a long time initially, those months will pass quickly. If you can’t pay off all or most of the balance by the time the interest rate goes up, you’ll end up in a similar situation to where you started.

Will you make your payments on time?

While it’s always vital to make your credit card payments on time, it’s even more important after you’ve completed a balance transfer. That’s because many cards will bump up your interest rate for even one late payment. Make sure you review and understand all the terms of your balance transfer before going through with it. And set up the new account on autopay so you’re never late.

Can you stop yourself from using the old card?

Here’s where a balance transfer can get tricky. Once you complete the transfer, your first instinct will probably be to close the old card. However, doing so may have a negative effect on your credit score, as it will reduce the total amount of credit you have available and change your credit utilization. Leaving the card open though, could be temptation to start charging on it again, which would put you further in the hole and negate any savings you would achieve from the balance transfer. Ideally, you should leave the account open but make it impossible to charge on it by destroying the physical cards and not allowing yourself easy access to the card information.

Have you explored other options?

There’s no doubt a balance transfer can be an effective way to pay off your credit card debt more quickly, but there are a lot of details to consider. Before deciding to do a balance transfer, take the time to consider additional options, such as Credit Counseling and a Debt Management Plan. Credit Counseling is free, confidential and can help you get a clearer picture of your entire financial situation. If you and your counselor determine a Debt Management Plan is a workable option for your situation, it could help you lower your interest rates and pay off your debt in 3 – 5 years without a balance transfer.

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