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Transferring existing debt to a new credit card can be a good way to consolidate your payments and pay down what you owe faster. With a balance transfer credit card that offers a low or 0% APR intro period, you could potentially save hundreds or even thousands on interest.
At the end of the day, however, your bank benefits from any mistakes you make. Here’s how to avoid common oversights and recover from pitfalls so you can get the most out of your balance transfer credit card.
Balance transfer offers come with a wide range of terms and conditions, including criteria that determine your eligibility for an offer within a provider’s suite of cards. Typically, you can’t transfer a balance within the same bank.
When applying for a balance transfer credit card, your provider’s card may actually be underwritten by another financial institution.
American Express, for example, is the credit provider for cobranded hotel cards that include Marriott Bonvoy and Hilton Honors. As a result, existing Amex customers aren’t eligible for balance transfer offers from these cards.
What’s tricky is that if you do apply for a new credit card with the same issuer, you could end up approved for the card — and even the balance transfers, in some cases — but not the promotional rates. This could leave you with more credit cards and no lower interest rate.
If you accidentally apply for a balance transfer with an existing card provider, your next steps depend on the stage of your application:
Partial transfers often come down to credit limits, so we’ll start there. When you apply for a balance transfer, card issuers typically cap your balance transfer limit — often up to 70% to 95% of your total credit amount.
If you’re approved for a credit limit that doesn’t leave room for this percentage, your new provider may allow for a partial balance transfer. The problem is that you end up with two debts: one on your old card and another on your new one. Your new card might offer a 0% APR intro period, but you’ll still pay interest on your old card’s remaining balance.
Balance transfers often come with additional costs that we can forget about until they show up on our statements. In particular, balance transfer and annual fees can put a dent in what you could save.
Fees can add up to more debt and a larger balance, especially when providers exclude them from the promotional rates if you carry them across months.
This mistake often comes up with 0% intro APR balance transfer offers, which can make it feel like missed payments are no big deal.
Even if there’s no interest applied to your balance, you’ll still have to at least pay the statement’s minimum each month. Otherwise, you could end up dealing with late payment fees and other penalties that include losing your intro offer altogether.
You’ll also have to wait up to 21 business days for approval and confirmation that your new provider transferred your balance from all of your old cards.
In the meantime, you have to continue paying the balance on your old card to avoid late payment fees and other penalties.
If you don’t cancel the cards you’ve transferred balances from, you might be tempted to turn to them for new purchases. It could undo the work you did to simplify your debt repayments and add new interest and other charges to your debt.
With many balance transfer credit cards, new purchases accrue interest at the card’s purchase rate, not lower intro rate. You also likely won’t be able to take advantage of a grace period on interest, meaning that interest accrues immediately.
Most banks and providers apply your monthly payment to higher-interest charges first. This means your transferred balances could sit around until after your new purchases are fully repaid and you may lose out on your 0% intro APR balance transfer offer.
Put simply: New purchases on your balance transfer card risks fully paying off your debt, regardless of the card.
For some cards, your total deferred interest is added to your card’s balance once your intro APR is up.
After your introductory period, your card’s APR reverts back to the standard or purchase rate offered to you at approval. The difference between your intro rate and revert rate could be as much as 25.99% or even higher. If you’re carrying a balance when the introductory period is over, the new interest rate applies to whatever is left on your card.
Your main reason for transferring debt should be to reduce the total amount of money you end up paying back and potentially condense multiple payments into one. After all the hard work you’ve put towards paying down your card debt, the last thing you want to end up with is … well, more debt.
When transferring your credit card balances, read the fine print and stick to the conditions your new provider outlines. The easiest way to avoid ending up with more debt is to prevent the conditions that cause it in the first place.
If you’re looking for a balance transfer to fit your needs, comparing some options using our comparison table is a good place to start. Just select your credit score and click Show cards to get started.
The ideal solution to balance transfer problems is to prevent them in the first place. That’s not always possible, but an oversight doesn’t mean you’ll be thrown off the path to financial freedom. Assess your situation, review your options and take the action that’s right for you. Now that you know what to avoid, compare balance transfer credit cards to find the best option for your financial needs.
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