Faced with a hefty credit card balance, those low APR credit card balance transfer offers jamming your mailbox are as tempting as ice cream on a sultry summer day. But are balance transfers a good idea for the deeply indebted?
They can be if you’re careful. But just like credit cards themselves, it’s possible to abuse credit card balance transfers and wind up worse than you started. If you’re paying off one or more credit cards with high interest rates, a low APR on balance transfers – even if it’s only for six months or a year – can save you a bundle on interest. But before you apply, consider the following:
1. Watch Your Rate
If the balance transfer APR is for an introductory period, can you pay off your balance within the that time? If not, is the standard interest rate better or worse than what you currently pay?
2. Don’t Be Late
The balance transfer APR is voided forever if you’re late with a payment just once. Your good APR can be affected by other accounts too. Creditors reserve the right to increase your APR if they perceived you are becoming a higher risk because of other accounts that are delinquent.
3. Not For Sales
The single biggest mistake people make with credit card balance transfers? Making new charges. That’s because the credit card companies apply your monthly payments to low APR balance transfers first while your new charges sit there accumulating finance charges at the standard rate. So as soon as you swipe your new card you negate part of the benefit or your balance transfer APR.
4. Will You Be Approved?
If you have bad credit or a high debt-income ratio, your credit card balance transfer application may be declined. Creditors worry you may use balance transfers to free up additional credit and go even further into debt. Don’t despair if you’re not approved for a new credit card. Continue to work on paying off your debts and your credit worthiness will improve.
5. Consider Your Credit Score
Consider your credit score when applying for a credit card balance transfer. Having more than two hard inquiries to your credit report (loan or credit card applications) per year will put a slight ding in your score, though it’s nothing as significant as if you’re late with a payment or close to your credit limits. If you do transfer a balance, you don’t necessarily want to cancel your old card. It’s a good idea to keep one or two credit cards that you have had for a long time open. Long-standing accounts, even with little current activity, boost your score. Check your credit score for free now.