Paying off a credit card balance with a high interest rate and large balance can be quite daunting, particularly if you are only able to pay the minimum amount due each month. One strategy to pay off credit card debt is by transferring those balances to a credit card with a low or 0% interest rate. If you aren’t careful, though, and don’t watch the fine print, you could end up paying more than if you stayed put. And, you could damage your credit history if you don’t approach this strategy correctly.
Before you begin transferring balances, be sure you understand the fine print. Here are five things to know before you begin. And, as always, let us know if we can answer any questions for you.
Know the cost of the transfer
A 0% offer is quite enticing if you are carrying a high balance. Be sure to read the fine print, though, and understand what the cost of that transfer is. Most credit card companies charge a fee for the balance transfer, upwards of 5%. If you are transferring $2,000, that’s $100 that you’ll be charged right away. If you don’t pay off the balance in the time allotted, an interest rate kicks in. So, ultimately, you’ll want to decide if that fee with future interest rate puts you in a better position than if you never did the transfer. Work the numbers and check with your credit union or bank if you need assistance understanding what’s best for your situation.
Look for lengthy introductory periods
0% for a long period of time is always better than a low rate for a short period of time. Compare offers and find one that will allow you to pay off your entire balance before the introductory period expires.
Only apply for one or two cards that you can qualify for
To be approved for a card with the most enticing balance transfer offer typically requires excellent credit. So be sure you can qualify before you apply. Remember, too many credit card applications in a short time can negatively affect your credit score.
Don’t use your new card
Avoid the temptation to use your card for new purchases. Often those purchases will be at a higher rate, putting you back in the same cycle as before.
Have a plan and stick to it
The purpose of your new credit card is to pay off debt. Set a budget for how much you will pay each month so that you can pay off your balance during the introductory period. If needed, set up an auto transfer from your checking account or online bill pay to pay your credit card bill each month so that you are less tempted to use those funds.
1st United Credit Union cannot give financial, tax or legal advice, please consult a tax adviser or investment adviser to assess your situation.
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