If you are stuck with a high-interest credit card and your credit card provider refuses to lower your interest rate, you may consider transferring your outstanding balance to a new card.
But simply put --borrower beware!
Before you agree to a balance transfer, make sure you know exactly what you are getting into. Balance transfer mistakes can cost you money, damage your credit score, and leave you deeper in debt.
Here are five mistakes you don't want to make -(and a couple options that may help)
1. Closing the Original Credit Card Account
After transferring an outstanding balance to a new credit card, many individuals close their old accounts. Closing your old account may seem perfectly reasonable, especially if you have no intentions of using the account again in the future. It can, however, have a negative effect on your credit score.
The age of your credit history is responsible for 15% of your credit score. If your original credit card account is one of your oldest accounts, closing it will shorten the length of your credit history and change the way your credit score is calculated. This can result in a lower score. In addition, the credit scoring formula takes into consideration the amount you owe on your revolving accounts and your spending limit. The lower the ratio is between the two, the better you can expect your credit score to be. When you close a credit card account, the spending limit is no longer factored into the credit scoring formula and your score my suffer.
2. Not Verifying the Spending Limit Ahead of Time
A credit card company will not notify you of the spending limit you qualify for until your initial application is approved. After the application is approved, you may call to inquire about your spending limit at any time. It is vital that you know your what your spending limit is on the new card before you initiate a balance transfer. If the amount of the balance transfer is greater than the spending limit on your new credit card, you may lose the low introductory rate by going over the spending limit with your transfer.
3. Not Considering Balance Transfer Fees
Some credit cards will charge you to transfer your balance. Balance transfer fees are often a percentage of the balance you are moving to the new card. These fees can be substantial if you plan to transfer a high balance. Some banks charge as much as 5% of your current balance to conduct a transfer. Therefore, if your current balance is $1000, you could expect to pay a fee of up to $50. If your balance is closer to $5000, however, your balance transfer fee could be up to $250.
4. Ignoring the Default Interest Rate on the New Credit Card
Low introductory rates on new credit card accounts are only temporary. After the introductory period, the interest rate will default to a higher rate. It is possible that your new interest rate could be as high as the rate on your old account. It could even be higher. Should this occur, you will be left repaying your debt under the same unfavorable terms you thought you had left behind. If you know your credit score, you can call the credit card company and ask which interest rate you qualify for. Although your interest rate is not set in stone, this will give you a good idea of whether you will end up with an interest rate similar to the one you already have.
5. Losing the Low Introductory Rate
If you do not closely follow the terms of your new credit card agreement, you may lose your low introductory rate before the rate is scheduled to expire. Making a late payment or going over your spending limit can cause the low introductory interest rate to be revoked, depending on your credit card provider. Read the fine print of your new credit card agreement to find out what will cause your interest rate to reset.
So who do you turn to for help getting out of debt quicker?
The answer to that question just might be yourself.
One way to bay off debt quicker is a little known system called "snowballing".
When using this method, it is all about paying your debts in the correct order. By paying off debts with the highest interest rate first, you can rid yourself of debt sooner than later and save thousands in interest payments.
In snowballing, you put as much money as you can afford on the higher rate card, and then pay only the minimum payment on the other debts. This calculator allows you to enter up to 20 different debts with their associated APRs, and the total amount you want to spend per month servicing your debts, and it'll work out the order in which you should pay your debts, together with the specific monthly payments you will need to pay. In the end, it shows you the date you will be debt free. It may take a little effort and work now -but in the end you will save thousands of dollars in interest and shave off years of debt.
Check with you local bank or credit union.
If you are considering a balance transfer -do so with care and full knowledge of what the transfer will cost you -in both time and money. If you looking to consolidate your debt in order to roll debt into a one payment loan, or find a credit card with a reasonable interest rate, I would suggest checking for various options you may find through your local neighborhood bank and credit union.
But simply put --borrower beware!
Before you agree to a balance transfer, make sure you know exactly what you are getting into. Balance transfer mistakes can cost you money, damage your credit score, and leave you deeper in debt.
Here are five mistakes you don't want to make -(and a couple options that may help)
1. Closing the Original Credit Card Account
After transferring an outstanding balance to a new credit card, many individuals close their old accounts. Closing your old account may seem perfectly reasonable, especially if you have no intentions of using the account again in the future. It can, however, have a negative effect on your credit score.
The age of your credit history is responsible for 15% of your credit score. If your original credit card account is one of your oldest accounts, closing it will shorten the length of your credit history and change the way your credit score is calculated. This can result in a lower score. In addition, the credit scoring formula takes into consideration the amount you owe on your revolving accounts and your spending limit. The lower the ratio is between the two, the better you can expect your credit score to be. When you close a credit card account, the spending limit is no longer factored into the credit scoring formula and your score my suffer.
2. Not Verifying the Spending Limit Ahead of Time
A credit card company will not notify you of the spending limit you qualify for until your initial application is approved. After the application is approved, you may call to inquire about your spending limit at any time. It is vital that you know your what your spending limit is on the new card before you initiate a balance transfer. If the amount of the balance transfer is greater than the spending limit on your new credit card, you may lose the low introductory rate by going over the spending limit with your transfer.
3. Not Considering Balance Transfer Fees
Some credit cards will charge you to transfer your balance. Balance transfer fees are often a percentage of the balance you are moving to the new card. These fees can be substantial if you plan to transfer a high balance. Some banks charge as much as 5% of your current balance to conduct a transfer. Therefore, if your current balance is $1000, you could expect to pay a fee of up to $50. If your balance is closer to $5000, however, your balance transfer fee could be up to $250.
4. Ignoring the Default Interest Rate on the New Credit Card
Low introductory rates on new credit card accounts are only temporary. After the introductory period, the interest rate will default to a higher rate. It is possible that your new interest rate could be as high as the rate on your old account. It could even be higher. Should this occur, you will be left repaying your debt under the same unfavorable terms you thought you had left behind. If you know your credit score, you can call the credit card company and ask which interest rate you qualify for. Although your interest rate is not set in stone, this will give you a good idea of whether you will end up with an interest rate similar to the one you already have.
5. Losing the Low Introductory Rate
If you do not closely follow the terms of your new credit card agreement, you may lose your low introductory rate before the rate is scheduled to expire. Making a late payment or going over your spending limit can cause the low introductory interest rate to be revoked, depending on your credit card provider. Read the fine print of your new credit card agreement to find out what will cause your interest rate to reset.
So who do you turn to for help getting out of debt quicker?
The answer to that question just might be yourself.
One way to bay off debt quicker is a little known system called "snowballing".
When using this method, it is all about paying your debts in the correct order. By paying off debts with the highest interest rate first, you can rid yourself of debt sooner than later and save thousands in interest payments.
In snowballing, you put as much money as you can afford on the higher rate card, and then pay only the minimum payment on the other debts. This calculator allows you to enter up to 20 different debts with their associated APRs, and the total amount you want to spend per month servicing your debts, and it'll work out the order in which you should pay your debts, together with the specific monthly payments you will need to pay. In the end, it shows you the date you will be debt free. It may take a little effort and work now -but in the end you will save thousands of dollars in interest and shave off years of debt.
Check with you local bank or credit union.
If you are considering a balance transfer -do so with care and full knowledge of what the transfer will cost you -in both time and money. If you looking to consolidate your debt in order to roll debt into a one payment loan, or find a credit card with a reasonable interest rate, I would suggest checking for various options you may find through your local neighborhood bank and credit union.
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credit card holders should be smart in choosing a credit card company. They have to compare which one is better when it comes to interest rates, credit limit and benefits.