Living with credit card debt is beyond stressful. I know how bad it feels because I’ve been there. I once had over $20,000 in credit card debt, and believe me, I had many sleepless nights over it.
My days weren’t much better. I recall having a lot of migraines while I tried to figure out how to get out of the credit mess I’d dug myself into.
You know what helped? Taking the first step toward financial freedom. There are many ways to get out of debt, but if you still have good-to-excellent credit (a FICO score of at least 720 or so), a balance transfer credit card might be your get-out-of-debt ticket.
Here’s how it works: You transfer your balance from your current high-interest credit card to a balance transfer credit card that offers a 0% introductory APR for a period of time, which usually ranges from six months to 21 months. Then you pay off your balance off during the intro period without paying interest.
Don’t Make These Mistakes When You Transfer a Credit Card Balance
That probably sounds like a dream, doesn’t it? It can be reality, though, as long as you avoid some common mistakes. Let’s take a look at how to avoid the mistakes that can turn your debt-free dream into a balance-transfer nightmare.
Mistake #1: You Don’t Know There’s a Deadline on the Offer
Most balance transfer offers are available anywhere from one month to four months after your application gets approved. Don’t waste this opportunity by missing the deadline.
Special offers that waive the transfer fee, which ranges from 3% to 5%, might have a deadline, too. Some cards might offer to waive the balance transfer fee, which is normally around 5%.
The catch? You have to make the balance transfer within the first 60 days of opening your account. After that, it’s a 5% fee, and if you’re transferring $7,000, that’s $350 you’d save ($7,000 x .05 = $350).
Mistake #2: You Stop Making Payments on Your Old Card Too Soon
This is a biggie because it can cause all kinds of credit chaos for you. It can take a week for a balance transfer to complete. If you stop making payments too soon, you could get hit with a late payment fee. It’s unlikely to get reported to the bureaus because the balance transfer will eventually go through, but still, you don’t need this headache while you’re getting rid of your debt.
It’s a good idea to call your old credit card issuer and get verbal confirmation that the balance has been paid. But don’t stop there. Check your account online and confirm the balance is zero there, too.
Mistake #3: You Don’t Know When the 0% Rate Ends
With a balance transfer card, your goal is to pay off your balance during the interest-free introductory period, if at all possible.
If you still have a balance at the end of that period, then the “go-to rate” kicks in. This means that the purchase APR for your balance transfer card is now applied to your remaining balance. Plan your monthly payments so your debt is paid off by the time the intro period ends.
Here’s an example: Let’s say you have a $5,000 balance and you got approved for a card with an 18-month 0% APR introductory period with a 3% transfer fee. The total you owe is $5,150, so we’ll divide your balance by 18 to get your monthly payment.
Your monthly payment: $5,150/18 (months) = $286.11
Make this payment every month for 18 months and you’ll be debt-free when the intro period ends.
Mistake #4: You Pay Your Credit Card Bill Late
Most balance transfer cards have a clause that tells you what triggers the loss of an introductory rate. Paying your bill late is a common one.
If this happens, then you’ll lose the 0% APR and the purchase rate will be applied to your remaining balance. Plus, you could get hit with a late payment fee. If your payment is over 60 days late, you could even end up with a penalty rate, which is often around 30%.
Don’t let this happen to you! Set up automatic payments, text reminders or e-mail alerts. Do whatever it takes to remind yourself that a payment is due.
Mistake #5: You Assume the Intro Rate Applies to Cash Advances
Hey, I can see how this might trip you up. You make an assumption that the 0% APR is extended to cash advances. This is a major problem, though, and here’s why.
Cash advances often carry very high APRs. We’re talking around 25% and even higher. The worst part, though? There’s no grace period. So you pay an astronomically high APR and the interest starts accruing as soon as it’s posted to your account. Just say no to cash advances, whether it’s on a balance transfer card or on any other credit card you possess.
Mistake #6: You Use Your Balance Transfer Card for New Purchases
This is kind of connected to the cash advance problem in that it’s easy to assume that your purchase APR also has an intro rate. When it comes to credit cards, making assumptions almost never, ever works out in your favor.
Some cards do offer the intro rate for both balance transfers and purchases, but that isn’t the point. You can’t get out of debt if you keep adding to your debt.
Now, if there isn’t a 0% APR on purchases, there’s still a costly problem to consider. You know how you get a grace period if you pay your balance in full every month? If you pay your balance off during that time frame, you don’t have to pay interest.
Well, your new balance transfer card has a balance on it. This means that if you make a new purchase, there’s no grace period and so interest on the purchase starts accruing right away. Using your balance transfer card to make new purchases is just an all-around bad idea.
Look at it this way: Your balance transfer credit card is a golden opportunity to get out of debt. Avoid these mistakes and you’re on your way to a debt-free life.
I know, it’s not easy to stick to those monthly payments. But once you start paying down your debt, you’ll be amazed at how energized and excited you’ll feel about being debt-free and taking back your life. That momentum will keep you going until your balance is zero.