5 Red Flags About Credit Card Balance Transfers, According to Experts
Make sure you're setting yourself up for success when moving around your debt.
Even though the burden of credit card debt can sometimes feel as though it's too much to bear, balance transfers can be an effective tool in working toward a brighter financial future. After all, moving what you owe to a new card can help avoid paying higher interest rates which can significantly prolong the process. But before you begin, you'll want to make sure you stay alert for any warning signs. Read on for the red flags experts say you should be aware of with credit card balance transfers.
Check how long the promotional period is on your new credit card.
Credit card companies know that balance transfers can be an effective way to enroll new customers for their services. Typically, they take advantage of this by offering a rock-bottom interest right away for anyone who signs up. However, you should be careful about how long that initial perk will last.
"The whole point of a balance transfer card is that it offers a low or zero interest rate. But that rate is only available for a specific time period that's often six to 12 months—though some are as long as 21 months," says Freddie Huynh, credit expert and vice president of data optimization with Freedom Debt Relief.
"Make sure you know what the period is and that it works for your situation. If for any reason you can not pay the full balance of your transfer to the card before the promotional rate expires, it won't be worthwhile," he advises.
Be mindful of the balance transfer fee.
Even though credit card companies offer low rates on some cards that can be used for balance transfers, the service doesn't come entirely for free. Be prepared to drop a little money just to get the process started—and make sure you can afford it.
"Keep an eye out for the balance transfer fee, which is charged on the amount of the entire transfer," Jim Wang, a personal finance expert and founder of Wallet Hacks, tells Best Life. "Many cards charge 3 percent, but there are cards that charge even more. A 5 percent fee is not uncommon."
Wang adds, "You may get 0 percent on the balance for the promotion period, but the card will collect that balance transfer fee up front."
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Double check how much debt you can transfer.
Credit card balance transfers can be a valuable tool for getting out of debt. But like all other available methods, it's far from a one-size-fits-all solution. In some cases, you may need to consider other options if your current obligations are too outstanding.
"A balance transfer may sound great, but does it accept the amount of debt you want to transfer over? Different cards will have different interest rates, but they also all offer different terms," says Huynh.
"Read the fine print. For someone with a large amount of debt and having a hard time making even minimum payments, debt resolution may be a better option than a balance transfer," he notes.
Beware of flashy rewards.
Credit cards can offer a lot more than just a way to pay for purchases. In fact, one of the biggest perks to carrying one can be all of the rewards, savings, and cash-back opportunities that come with them. But if you're opening a new card with the intention of decreasing debt, experts warn that these bells and whistles can be a dangerous distraction.
"Many balance transfer cards offer rewards," Huynh says. "It can be tempting, but often the card may carry a higher interest rate, a shorter promotional period, or an annual fee."
And there's at least one other obvious downside. "Rewards can tempt a cardholder to use the new card for new purchases. This can just get you back into the same debt situation," Huynh cautions. "Instead of keeping it in your wallet, store the new card in a safe place so you are not tempted to use it."
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Make sure you follow through with your plan.
Getting started on reducing your credit card debt can be a relief in and of itself. But anyone looking to take care of their bills once and for all will have to stay focused on the task at hand if they want to make a balance transfer ultimately worth it all.
"You should ask yourself what you'll do with these new attractive terms if you do qualify for everything as advertised," says Riley Adams, a certified public accountant and founder of Young and the Invested. "Will you use it as a one-time tool to power through your debt and avoid falling back into this costly form of financing? Or will it only serve as a means to borrow more—and potentially lead to a worse financial situation?"
Adams concludes, "Even once you navigate the red flags that come with a credit card balance transfer offer, you'll need to address the core issue: Will this change your behavior and financial situation for the better?"
Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.