4 Things to Plan for Before Doing a Balance Transfer

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Photo credit: threeifbysea

In my experience there are advantages and disadvantages of getting a balance transfer. Of course you can save interest on higher end of the card if used correctly, but there are things to take into consideration before you go through with the credit card balance transfer.

1. Introductory Rate Period / Balance Transfer Period

In balance transfer, you will have an introductory rate period / balance transfer period.  You will need to make sure that you pay off your transferred balance before this period ends. If not you will be charged the current rate on remaining balance on the card. The balance can be anywhere from 10.99% to 19.99%. Typically the balance transfer period will be anywhere from 9 months to 15 months.

The interest rate free period is to lure new customers so that they use their credit card. This is so that the credit card company can collect interest on the balance of the card.

2. Plan to Pay off the Balance

Make sure to have a plan and stick to it. You will want to take your balance transfer amount and divide it by months when the 0% rate is active. This is so that you can stay on track to take full advantage of the balance transfer period.

If you don’t plan your payment schedule, you may end up paying more interest than you had thought. If you don’t feel confident that you can stick with the payment for 9 to 15 months don’t go through with the balance transfer.

3. Fees

Fees can come in different ways when completing a balance transfer.They can come as a minimum fee of say $10 and or a percentage of anywhere between 2% to 4% of the balance transferred. It also can be a combination of the two.

To make sure that you’re getting a good deal on your balance transfer, make sure you calculate the fees that you may incur and what you would have paid by paying down the credit card normally. You can easily go to Bankrate.com and use one of the credit card calculators to find out how much interest you would pay on your credit card.

4. Will you be Using the Card?

If you plan putting using the credit card you are that the balance transfer is going toward, think again.

Generally you lose normal benefits that you have with your credit card. The one that is most important to me is the credit card grace period. This is  where you are not charged interest if you pay your balance off in full every month on normal expense.

Another kick in the pants is when you make a payment on your credit card. Your payment will go to the balance transfer first before being used to pay the principal amount on your most recent purchases. This means that you will be charged interest on your purchases, and the interest will continue to grow as long as you have a balance on your “transferred amount”.

Side note: If you do have an personal loan or a debt that is not on a credit card, you can still do a balance transfer. All you would need to do is enter your checking account information and the credit card company would send a check to your checking account. I recently did this and received the funds after about two weeks.

Be careful before you take advantage of a balance transfer. Until next time.