If you have an offer to transfer your credit balances into a lower APR credit card, it may look like a good solution to your credit card oriented issues. But, before you start consolidating your debts onto a new credit card, it's important to be cautious regarding the fine prints and probable pitfalls. Your ignorance may let you down towards a grave and expensive danger.
Here are the steps you must choose to be on the safer side of a balance transfer:
1) Identify and reduce your debts
If you’ve decided to start balance transfer from your credit card to your other low-interest account, it means the balance transfer process itself is a proof that you have huge debts on your head. It may also indicate that you’re going to encounter few problems ahead. So, prepare your documents and contact a credit counselor to create a budget for you and reduce your spending before the balance transfer.
2) Check out for uncapped balance transfer fees
There is a fee which you have to pay while transferring credit balances from one account to another. Earlier, the percentage of the fee amount was fixed. But recently, some credit card companies are removing the cap on the fee amount. For example - before 2008, the 3% fee on a transferred balance would never cross the cap of $50 to $75. But from 2008, several card issuers removed the caps. Now, a 3% balance transfer fee on a $15,000 debt is $450. So, before transferring the credit balance, read the initial credit documents and fine prints.
3) Avoid buying through cards or cash advances
Many credit card companies allow a grace period for buying if your previous balances are paid off completely. But, you can’t do that with this card as you are using it as a loan. If you buy on credit or may use it for cash advances, your payments will be applied towards the low-interest balance transfer. If it takes few busy years to pay the balance transfer, your cash advances and the purchase may get stuck there accruing interest at 5, 10 or 19 %.
So, using this card might be very dangerous. You can stick to the plan of balance transfer, but you need to purchase or make a cash advance from any other card.
4) Beware of the bait-and-switch element
If you get a balance transfer offer, which is pre-approved for a certain amount, but at the time of submitting the application, you’ll find out it’s actually a lesser amount that you are eligible for. So, if you want all your balances to get transferred to this card, you may still get stuck with huge debt. Your credit limit might have increased, which might also affect your credit score.
5) Shop around for the best rate
It's crucial that you must shop around and make sure to get the best rate. Finding a right credit card is the best way you can start managing your finances. Check out different websites, and see, which cards offer which rates with facilities.
You might get an offer of 9.9% APR and think it’s the best for you. But, you didn’t know that actually you can qualify for 4.9% APR. So, you can consider several credit cards and maintain them properly. People normally go for several credit cards due to the cost of credit card cash advances, lending urges, and for promotional rates on purchases. To become debt free, first make payments to the card with the highest APR.
6) Remove the new card
Closing an old credit card account is not a good idea, it’ll definitely harm your credit score. So, don’t do it right away. You can close any new credit account having a high APR, you can destroy the new card physically so that you won't be manipulated to use it for any purpose, just use it to pay off the balance.