Credit card balance transfers are commonly used as a cost-saving strategy by consumers who are saddled with debt on a credit card. These transfers are mutually beneficial for both credit card companies and customers: the companies receive new customers, and the transfer applicants usually receive low interest rate incentives and other special offers from their new credit provider. Although balance transfers are relatively simple and can be completed in as little as a few hours, there are several important factors to take into account during the process. Here are four simple steps to keep in mind:
1. Research the Transaction Fee
Although balance transfers are usually treated like cost-saving maneuvers, they can actually backfire in this respect if the transaction fee for the procedure is too high. The typical transaction fee is usually between 1-5 percent of transferred debt, but terms and conditions can apply: the fee may be uncapped or subject to minimum transfer requirements. High transaction fees can negate the economic benefits of switching cards, and diminish your credit score.
2. Look at the Full-Term APR
The full-term APR, or annual percentage rate, of your card can tell you a lot about the viability of your balance transfer. Many credit companies offer eye-popping introductory APRs to new customers, but those rates may steeply increase in the following year. The introductory APR also may not apply to your situation if you have a poor credit score or other inhibiting factors.
3. Check Your Credit Score
People with low credit scores are subject to all kinds of underhanded lending behavior from credit card companies. They may not be able to transfer their balance in full without paying a fee, or they may be forced to accept a shorter introductory period. Checking your credit score puts you on the same knowledge level as your prospective lender, and can help you weed through which deals are fair and which are predatory.
4. Check in Periodically With Both Providers
Typical credit card balance transfers take about four weeks to be completed. In the meantime, you will have to continue making payments on the old card so that your credit score does not plunge while the transfer is processing. This can negatively affect your initial APR, your term rate, and the length of your introductory period. Make sure that both providers are aware of the process, and that both understand the terms of the balance swap.
When executed correctly, credit card balance transfers can save you thousands of dollars in interest payments over years of credit activity. Make sure to take proper precautions when initiating a transfer: know your credit score, your current balance situation and the terms of the contract that you are agreeing to.