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Should You Transfer Account Balances?

Should You Transfer Account Balances?

Many popular credit card issuers advertise balance transfers as one of the top perks for their card. In fact, you can often find promotional offers of 0% interest on balance transfers for the first year or more after opening the credit card.

Transferring account balances can be a great financial choice for you because you can move the balance from a high-interest rate credit card to one that is not charging you interest at all. That way, your credit card payment will go entirely toward paying down the balance, rather than having to pay the monthly interest first. If you are looking to get out of credit card debt, transferring account balances to a new card can help.

Features to look for on your new credit card

Making the most of balance transfers is largely about choosing the right credit card. There is a lot of competition in the credit card industry, so as long as you have a good credit score, you should have plenty of strong offers from which to choose. Look for several features to help you pick the best new credit card.

  • Zero percent interest on balance transfers: There's no sense in paying interest on your balance if you can get a card that does not charge interest at all.
  • Zero percent interest on new purchases: If you plan to use the card for a planned purchase, see if the 0% interest rate also applies to new purchases.
  • Long introductory period: The promotional interest rate might last only a few months, or it might last longer than a year, depending on the policies for that specific card. The longer the introductory period is, the more time you will have to work on paying down your balance without paying interest.
  • Low balance transfer fees: Ideally, you would get a credit card with no fees for balance transfers. However, that is rare these days. Know what percent of the balance transfer amount you will be charged as a fee, and choose a card with a low percent.

Make sure balance transfers do not hurt you

Overall, transferring your balance can be a wise financial move if you handle it correctly. However, there are a few things that could hurt you in the long run if you are not careful. Pay attention to each of these factors to protect your credit and your personal finances.

  • Work on reducing your debt: Some people use balance transfers as a way to free up available credit and spend more. Remember that you will eventually need to pay off all your purchases. If possible, don't charge any new purchases to your old credit card or the new one.
  • Make your payments on time: Credit cards are allowed to charge you a penalty interest rate if you miss payments. This interest rate could be shockingly high, especially if you were expecting to not pay any interest. Set up automatic payments or payment reminders to help you stay on schedule.
  • Know the effects on your credit score: Be very careful with balance transfers, especially if you establish a pattern of moving the balance to a new card again and again. Each new card will negatively affect your credit score. In addition, keep your ratio of the outstanding balance to credit limit as low as possible. That goes for all of your credit cards.