If you’re dealing with multiple credit card debt, transferring your balances to a lower rate or zero interest rate is a great repayment strategy. However, before you go ahead and sign up for that new credit card, consider the following points before making the switch:
1. The rate of interest. Understand which interest rate applies to each transaction. Some cards offer zero interest rate on balance transfers but the regular rate will apply on new purchases. The APR applicable to cash advance transactions may also differ and could even be higher than the rate for other transactions.
2. How long the 0% APR lasts. Usually, the zero percent rate will only last for 6 months or it can last up to 12 months, depending on the issuer. It’s important to know exactly how long you can enjoy the 0% rate so you can plan your repayment strategy. Remember, you will need to complete your payments within the zero-rate period in order to successfully consolidate.
3. The balance transfer fees. How much will it cost you to transfer each balance? If you must make multiple transfer, the fees alone could cost you hundreds of dollars. Some balance transfer credit cards have a cap on the maximum balance transfer fee which could be $50 to $75. However, for other cards with no cap, the fees can really be a burden. What you save on the interest rate, you might be paying back on balance transfer charges.
4. Prepare for the challenge. Are you ready to pay off your debt? Successful debt consolidation will ultimately depend on how you stick to the repayment plan you’ve set. Remember, if you do not submit your credit card payment on time, you will still be charged with late penalty fees. Even worse, if you fail to complete your payment while the zero rate applies, you could be stuck with another high rate card.
5. Credit limit usage. Transferring all your balances from other credit cards may cause you to exceed your credit limit. Maximizing your limit can also take its toll on your credit score. Hence, before transferring a balance, don’t forget to consider your credit line and how it will affect your credit rating.
6. Your personal credit rating. Are you qualified to apply for a balance transfer credit card? Most issuers that offer zero interest rate on balance transfers strictly require good to excellent credit. If you have a low score or bad credit, your application may get rejected, which can further damage your rating.
Melanie Mathis is a credit analyst and a writer for 8 years. She has been participating in the programs of http://www.newhorizon.org such as their continuous effort in giving out Free Credit Repair Guide. NHBS also has a list of recommended credit cards for fair credit.
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