Credit & Debt, Credit Cards, Financial Planning

Knowing When to Transfer Your Credit Card Balance

Getting underwater with high interest credit card debt can be easy. One second you’re buying a trendy sweater, the next second you’re getting 20 percent off by signing up for the store credit card. Before you know it, the card is loaded with a balance so high you’re struggling to make the minimum payments.

Luckily, transferring that balance to a new credit card can present a solution, given the right circumstances. Keep these points in mind to help you decide if you’re a good candidate for a balance transfer, and whether it’ll actually save you money in the end.

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Find a Better Rate

Transferring your balance only makes sense if you can move it to a card with a better rate. A zero percent introductory rate can often be found for six to 18 months, but even a 10 percent rate can make sense if your current card is in the high double digits.

Instead of transferring to another card, try consider transferring to a debt consolidation service like Prosper.com. Prosper is a brand-new marketplace that allows consumers to borrow up to $35,000 to pay down debt at lower interest rates than credit cards. You can get a free rate quote in minutes and it won’t impact your credit score.

Mind the Fees and Maximums

Zero-fee balance transfers were very common a decade ago, but the recession mostly put an end to that. Though a deal that great can still be found if you have a stellar credit score, most cards now assess a 3 to 5 percent balance transfer fee, so you’ll need to factor that into your calculations.

You’ll also want to make sure the new card has a maximum balance that’s high enough to complete the transfer, or transfer only a portion of the balance if the maximum isn’t high enough.

Once You’ve Transferred the Balance

While you’re paying off your existing debt, you’ll want to make sure you don’t use the new card for any additional purchases. Chances are those new purchases will be subject to a higher APR, and financial regulations now require credit card providers to apply your payments top down. This means they’ll pay down the highest APR debt first, so those new purchases could easily be preventing you from actually reducing the originally transferred debt that’s enjoying a low introductory rate.

Finally, make sure you pay the full balance off before the introductory APR expires, or you may end up right back where you started.

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