The Dos and Don'ts of Balance Transfers

Then you see it. It’s an ad for a competing credit card offering 0% APR on a credit card balance transfer. You may even get money back for completing the transfer. It’s so tempting to take the plunge.

Whoa—not so fast! This may be a great move, but you need to be sure you do the math before taking the leap. Here are the three most common mistakes people make when choosing a balance transfer:

1. Not shopping around

   Of course, it would be easy to just click on that first ad you see and fill out the form. But you’re not looking for easy—you want what’s best for your financial health. Not shopping around and comparing offers could end up costing you more money. And isn’t the whole point of a credit card balance transfer to save money?

   Before you start comparing cards, you need to know what to look for. The Consumer Financial Protection Bureau recommends comparing four elements: annual percentage rate (APR), fees, APR for balance transfers and penalty APR.

   We recommend starting your search for a new credit card at your current bank or credit union. Your existing relationship with them may give you an advantage for a better offer than you’d get with a new financial institution. You can then compare their offer with others.

   You don’t need to spend an extended period of time researching, but take a few days to compare and shop around until you find the best features and best balance transfer card for your situation. For example, maybe you could find one that gives you 0% interest for 12 or 18 months instead of only six months.

2. Choosing a balance transfer offer when you could easily pay off your current balance

   Trading in your high interest rate for something considerably lower sounds good, but you have to look beyond that. Take into consideration all the costs involved. Is there a transfer fee? Is there a cash advance or annual fee? Compare the interest you’ll pay on your current bill (assuming you don’t rack up any additional debt) to the amount of any fees. If you can comfortably pay your credit card balance in a fairly short time period, it may be worth it to stay where you are.

3. Not paying your debt in full before the offer expires

   You’ll want to be wary of two things: adding more debt (like those new noise-cancelling headphones!), and blowing past your transferred balance deadline.

   Like the saying goes, all good things must come to an end. This is true for the amazing transfer rate you received with your credit card balance transfer. Most introductory rates expire between six and eighteen months after signing up, so do everything you can to pay off your debt in full before the rate increases.

   A balance transfer is a useful tool to eliminate debt, not just a way to delay paying it. Stay on track by either tightening up your budget, creating a payment plan and always making more than the minimum payment each month, or setting up automated payments. Use a credit card payoff calculator to divide your balance by the number of months the 0% APR is active. This amount is your new monthly payment.

Bonus tips:

• Maintain good or excellent credit

  To get the best balance transfer offer, you need good to excellent credit (a 700 or better credit score). If you don’t have at least good credit, now may not be the best time for a balance transfer. Instead, take steps to raise your credit score—like paying down your current balances. This will help you get better terms once you are ready to apply for a transfer. With many credit cards, your credit score affects how long the introductory low rate offer will last.

• Don’t use your brand-new low interest as an excuse to max out your card

  Do you know the specific reasons why you got into the debt that you're now looking to transfer? If not, then simply switching to a credit card with a lower interest rate probably isn’t going to solve your debt problem. It’s more likely going to put you in a worse predicament than you were before the balance transfer.

• Read the small print.

  Sure that introductory rate is amazing, but how much interest is charged on new purchases? How long does the intoductory rate last? Many balance transfer cards only apply the promotional rate to the transferred balance, so anything new you buy collects a much higher interest rate. Also, check if there is a transfer fee or an early payment penalty. Credit card companies have to make money, and they do it by having higher interest rates on new purchases and by charging fees.

If you’re looking for an easy and fast way to save money, then check out Mountain America’s balance transfer. Once you’ve completed your balance transfer, be sure to review our checklist of what to do after a balance transfer.

On approved credit. Variable annual percentage rate based on creditworthiness. Maximum interest rate over the life of loan is 18% APR. 1% foreign transaction fee. Membership required—based on eligibility.