What happens to your card after you transfer a balance?
After your balance transfer is complete, your old account doesn’t automatically close. In fact, it could still hold a balance depending on the amount you were able to transfer.
Work with the provider of the card to take the necessary steps should you want to close the account. Note that this may not always be the best option, however, depending on your financial needs.
Should you close your account after a balance transfer?
It depends. Closing your account can remove temptation to spend, but it also may impact your credit score.
Here’s what to consider before closing your old account:
- Can you resist the temptation of spending? If the answer is no, you may want to strongly consider closing the account or looking into ways of removing that temptation.
- Does the card have an annual fee? An annual fee for a card you’re not using can feel like a waste of money. However, you may want to consider more than just its face value.
- Are you applying for other credit products? Closing an account can have a negative impact on your credit score. If you’re seeking loans or other credit, you may want to hold off on closing the account until after.
- Do you want to use the card in the future? Of course, there’s a reason you got the card in the first place. A good cashback rate, a lower APR or unbeatable travel benefits may make it a keeper.
How closing an old account can impact your credit scoreTwo of the five portions of your FICO credit score are your credit utilization ratio and credit history. Both can be impacted by closing your old account.
The total amount of credit you have versus what you’re currently using makes up your credit utilization ratio. Closing an account lowers the total amount of credit you have and raises the ratio, which can negatively affect your credit.
Similarly, the credit history portion of your score is the average age of your credit accounts. Longer established accounts indicate a good relationship with creditors, and closing an account lowers that average age.
Alternatives to closing your old account after a balance transfer
You don’t necessarily have to close your account to avoid spending more on your old card. Here are three ways to help keep yourself in check:
- Budget and stick to it. A good way to avoid spending on credit is to make a detailed budget and adhere to it.
- Cut up your card. Make it more difficult to spend from the account.
- Delete the card from digital wallets and saved sites. Similar to the last one, this is about making it difficult to spend the funds. It can also help curb midnight impulse buys.
Managing your balance transfer card
There are a few key details you should pay attention to after you’ve conducted your balance transfer:
Transfer offers generally last between six and 21 months. Typically the balance transfer promotional period begins once your first transfer completes. The sooner you begin repaying your balance, the longer you’ll have to take advantage of the low interest offer.
Set phone and calendar reminders to prompt you to make regular repayments and to flag how long you have left.
Most US providers offer cardholders 0% intro APR balance transfers, but if it does charge a low interest rate, it’s important to understand how much your balance will grow each month and how to factor this into your repayments.
Creating a payment plan will help simplify the process and reduce your chances of failing to repay your entire debt by the end of the promotional period.
Once the promotional offer ends, the revert rate will kick in and start collecting interest on your remaining debt.
Make regular payments to avoid growing your debt again with interest once the offer expires. Don’t use your card for purchases and keep an eye on when the offer ends to ensure you don’t have a balance at that point.
You may have a 0% introductory interest rate, but you still need to make minimum repayments each month. How much you have to pay will vary from card to card, but this amount rarely allows cardholders to repay their entire debt by the time the promotional offer ends.
You should aim to pay more than the minimum amount each statement period to avoid collecting high interest once the promotion expires.
Work within a budget
Consider the size of your debt, the length of the promotion and the interest rate to calculate how much you’ll have to pay each month to ensure your entire debt is repaid by the end of the offer.
After the offer ends
If you’ve found yourself with a remaining debt at the end of your promotional period, you might want to consider doing a second balance transfer. However, you might be less likely to be approved for your application as lenders can see your credit history shows you were unable to repay your debt during the promotional period.
Applying for too many credit cards and rejected applications can have a negative impact on your credit file. It’s important to consider how using a second balance transfer as a back up will affect you.
Balance transfer credit cards can be a worthwhile consolidation tool, but only when used properly. Plan your strategy, make regular repayments and follow the above simple tips to ensure you get the most out of your balance transfer.
Compare balance transfer credit cards
To manage a credit card after a balance transfer requires a certain level of dedication and planning. Just getting the debt shifted over won’t be an instant home run, and smart budgeting is crucial to prevent you from falling into the same place you were before the transfer.
Nail down your plan, and if you’re going to use a back-up card make sure to compare your options before securing it.