A balance transfer credit card is a powerful tool in your debt payback arsenal. Balance transfer cards offer a special 0% introductory rate for a limited time on transferred balances. Although you do have to pay a small upfront fee in most cases, being able to reduce the interest rate on high-interest credit card debt down to 0% can make payback much easier.
But balance transfers don’t make sense for every person in every situation. Before you decide that this approach is right for you, watch out for these three signs that transferring your balance is a decision you could come to regret.
1. You don’t have a plan to pay back the transferred money
A balance transfer makes paying off your debt cheaper and easier, but it doesn’t make that debt disappear.
You want to make sure you know how much money you need to send to the credit card company each month to pay off the transferred balance before the 0% rate expires. You’ll also want to make sure you can find room for that amount in your budget.
2. Your spending isn’t under control
If you open a new balance transfer card and you transfer your existing credit card balances to it, you will free up the credit on your existing cards. This could lead to a huge financial disaster if you don’t have your spending under control. You could end up inadvertently charging even more money on your old cards even as you work to pay down your new balance transfer debt.
If this happens, you could end up getting in way over your head because you’ll have the new balance transfer debt to pay back — plus any additional charges you make on your old cards. You need to make sure you aren’t going to be tempted to overuse your credit cards before you do a balance transfer and free up your credit line.
3. Your card offers a 0% rate for a very short time
Most balance transfer cards offer a 0% introductory rate for a limited time, such as 12 or 15 months. If your card’s introductory rate period is short — such as a six-month timeline — then that may not give you enough time to pay off the transferred balance while making reasonable monthly payments. You could end up with a huge balance left over at a high interest rate.
Paying a balance transfer fee may also not be worth it if you get the intro rate only for a limited time.
So before you move forward with a balance transfer, make sure that you are living on a budget, won’t be tempted to overspend, and have made a plan within that budget to pay the debt back before the 0% rate expires. And be sure the 0% rate is for a reasonable time period. If you take these steps, hopefully transferring your credit card balance can help you become debt free and can be a good first step towards a better financial future.