How to Make a Balance Transfer Credit Card Work for You

Before you apply for any new credit card, it’s a good idea to know exactly what you’re going to use it for and how it fits into your overall money management plan. This goes double for a balance transfer credit card, since it involves moving debts around and potentially getting a discounted or zero interest rate for a limited time.

The catch with balance transfer credit cards is that after a specified number of months (it could be anywhere from a few months to a year or more), the interest rate will kick in and you will pay interest on all the months in which interest was deferred. This means that you can suddenly find yourself in an overwhelming amount of debt. Here is how you can avoid getting into trouble with a balance transfer card.

Don’t put any new debt on the card. When you sign up for a balance transfer card, you will get the contract. Read through it and see what the interest rate is on new debts. Most of these cards only offer reduced or zero interest on the initial balance transfer, not subsequent transfers or everyday payments you make once the card is active. If you use this card for spending, you’ll pay the full – often quite high – interest rate on these debts.

Be aware of the terms for missed payments. Some companies give you more leeway than others, but others will end your promotional period as soon as you miss a payment – even if it’s an accident and you only miss it by a day. If you accidentally miss a payment, make sure you immediately contact your credit card company to explain the situation. Sometimes, they will be willing to give you a break the first time it happens as long as you have paid on time every month before now.

Decide to pay down or pay off your debt. The best way to keep the interest from being a surprise is by paying off or at least paying down your credit card debt. The time period when you aren’t accruing interest is perfect for meeting this goal since you will only have to worry about the balance, not the additional money you have to pay. Make a budget and plan to pay off your debt by putting every bit of money you can spare towards this credit card until it is paid off. You can calculate how much you have to pay off per month by dividing the balance by the number of interest-free or reduced-interest months on the credit card.

Don’t immediately close other credit cards. In general, people choose a balance transfer credit card and then close their old account. This can negatively affect your credit score, however, so some experts recommend that you keep the old account open. Having more available credit that you are not using is a good sign, as long as you can avoid the temptation of using it. You know yourself best: if you’re the type of person who won’t be able to resist using the card because it’s there, close the account, but if you aren’t, keep it open for now.

A balance transfer credit card should fit into your life instead of you using it as an extra bonus. Before you apply for a new credit card, make sure you know where it fits in your money management plan and budget, and don’t put more debt on your new card than you have to.

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