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Three Balance Transfer Mistakes to Avoid
Most people are aware that transferring a balance is a great way to pay down debt fast and save money while doing it. But beware of these three common mistakes that can trip you up.
- Mistake #1:Stopping payments on your old card before the balance transfer goes through. Once you’ve completed your balance transfer paperwork, online form or telephone call, it can be easy to forget that you still owe a minimum payment on your old card. Depending on the credit card issuer, it can take a few days or a few weeks for that transfer to go through—meaning it’s important not to forget about paying your old card in the meantime. The balance transfer, when it does go through, will look like a payment on your old card statement. But if it doesn’t hit your account before your next payment due date, you can still get slapped with a late fee—and your credit score could take a hit too, depending on how long you neglect to pay that old card.
- Mistake #2:Not factoring in the balance transfer fee. The glory days of balance transfers aplenty with no fees involved are, for the most part, behind us. Almost every balance transfer offer comes with a fee—usually between 3% and 5% of the balance transferred, or a minimum or $10-$15. In many cases, paying a fee to transfer a balance from a high APR credit card to a 0% APR credit card is well worth it. But don’t forget to factor it in when you do the math on your transfer, especially if you are transferring a large sum. For example, a balance transfer or $10,000 with a 3% balance transfer fee will cost you $300. Look at the length of your interest-free introductory period and your old APR to determine how much you’ll save and whether it benefits you to pay this fee in the long run. There are many balance transfer calculators available online to help you figure this out.
- Mistake #3: Not paying down debt before the introductory period ends. Once that balance is transferred, it’s tempting to put it to the back of your mind. The debt is no longer accruing interest, your minimum payment is likely very low, and if the promotional period is a year or more, there seems to be no rush to pay it off. But be careful: that year will go by quickly, and before you know it, you’ll be paying interest on that balance if you have not paid it off already. It’s better not to look at the minimum payment printed on your statement: you will not pay your debt off before the 0% interest period ends if you only pay that amount. Instead, make your own calculations and figure out how much you need to pay each month in order to get your balance down to zero with no interest. That is the real minimum payment you need to make each month.
A balance transfer is a smart financial move, as long as you avoid these mistakes.
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