You’ve conducted your balance transfer, but what now? Here are some tips on how you can manage your new credit card and consolidate your debt
Balance transfer credit cards can be an efficient way to free yourself from high interest and start consolidating your debt. Conducting a balance transfer is a simple process, but repaying your debt before the promotional offer runs out can be tricky. Here are a few tips to follow to ensure that your consolidation goes successfully and smoothly once you’ve transferred your balance.
Pay attention to the details of the promotional offer
There are a few key details of the offer that you should pay attention to after you’ve conducted your balance transfer:
Transfer offers generally sit between 6 and 24 months. Once your card has been approved the balance transfer promotional period begins. 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% balance transfer offers, but if it does charge a low interest rate it’s important to understand how much your balance will grow each month and how you’ll need 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.
Like all good things the low promotional rate on your balance transfer doesn’t last forever. Once the promotional offer ends, the revert rate will kick in and start collecting interest on your remaining debt. The revert rate is generally the much-higher standard cash advance or interest rate.
To avoid growing your debt again with interest once the offer expires make regular repayments, don’t use your card for purchases and keep an eye on when the offer ends to ensure you don’t have a remaining debt at that point.
You may have a 0% interest rate, but you’ll 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 that your entire debt is repaid by the end of the offer. If not, your remaining balance will begin collecting the higher revert rate and you could get stuck in the debt trap once again.
Decide what to do with your old cards
Opening a balance transfer credit card doesn’t automatically close your old cards. Though you may not want to cancel them just yet, as it may have an impact on your credit score. Both your credit utilization rate and the age of your card can positively or negatively affect your credit rating.
- Credit utilization rate. This is your debt-to-limit ratio — if you have a $1,000 limit and a balance of $800 you have a rate of 80%. There are no hard-and-fast rules for how long you should try to keep your rate, but many money experts recommend that you should shoot for under 30% as a goal. Your credit score may take a hit upon transferring one or several balances to your new card when it uses most or all of your limit.
- Age of card. Credit bureaus like to see that you have had a long relationship with your credit card. The older your card, the better.
- Annual fee. On the other hand, if your old cards have an annual fee and you don’t plan on using them any longer, you may want to consider closing them if you don’t want to keep paying the fee every year.
Compare Balance Transfer Credit Cards
Don’t use your balance transfer credit card for purchases
The sole purpose of getting a balance transfer is to consolidate your debt. Using your balance transfer card for purchases completely contradicts your debt consolidation aim.
Balance transfer credit cards often charge high interest on purchases, and depending on their terms and conditions your repayments could automatically go to whichever debt is collecting the least interest. By using your card for purchases your payments go towards your balance transfer debt while the balance for your purchases accrues interest.
Interest-free days are only active if you’re not carrying a balance at the end of the statement period, so you won’t be able to cut interest costs that way.
If you want a card for emergency purchases, you might want to consider applying for a different card with a low interest rate on purchases and do your best to keep the other card for consolidating only.
Visualizing payment hierarchy
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, credit history that shows you were unable to repay your debt during the promotional period could cause lenders to be less likely to approve your application.
Applying for too many credit cards and rejected applications can have a negative impact on your credit file, so it’s important to consider what affects using a second balance transfer as a back up will have.
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.
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.