You are hoping to pay down your credit card debt and you're considering a balance transfer to help you save money. Should you do it?
Credit card companies love to send you offers with low introductory rates and balance transfer options. And balance transfers aren't always a bad thing. But there are a few things you should consider first.
- Transferring your balance is NOT the same thing as paying off your credit card. If you are going to move to a card with a lower interest rate than what you are paying now, that's great! But you need to be disciplined and make payments that are large enough to pay off your balance before the rate increases. Otherwise, you could end up paying more interest over time.
- Balance transfers could hurt your credit score. Creditors want to see that you are paying your bills on time, reducing your balances to below 35% of your available credit limit, that you have a long history of using credit wisely, and that you are not repeatedly transferring balances from one company to another.
- Be sure to consider any balance transfer fees that may apply. Not every balance transfer is free and it is important to know what you will be paying up-front.
- Closing long-standing credit cards can hurt your credit score, so weigh the pros and cons of closing the credit card account you are transferring. If you keep your old card open, you will likely free up a lot of credit. But, if the temptation to use the old card is too great, it may be worth the short-term negative impact to your credit score to keep from incurring more debt.
- To transfer the entire balance of your current credit card, you would need to qualify for a high enough credit limit. That might not be possible. Even still, it could make sense to transfer a partial balance if you are disciplined enough to pay off the amount you are transferring over during the introductory period.
- Finally, the most important tip - QUIT USING YOUR CREDIT CARDS! If you really want to start saving money, you need to address the root of your problem and that very well may be that you have a spending problem. A cash reserve is an excellent alternative to using credit cards for emergencies, so consider building your cash reserve while simultaneously paying off your debt. This will keep you from racking up more debt in an emergency situation.
Have questions about balance transfers? Wondering how to put together a plan to save money, build up your cash reserves, and pay off your debt? Contact me at firstname.lastname@example.org and together we can come up with a plan that works for you!