When you are struggling to pay off your credit cards, you may be trying to find the lowest interest rates possible, while you work on paying down your balances. One trick that many people use to help them lower their interest rates and to help them get out of debt more quickly is to play the transfer game for their credit cards. This strategy really can help you make a bigger dent in your principal balance and make it easier to pay off your debt, because it lowers your interest rate. However, it can backfire if you are not careful while doing it.
1. Tip 1: Zero Interest Card
The most important aspect of transferring your balance is to find a lower interest rate. It is best to apply for a card with a zero percent introductory interest rate. This will allow you to reduce the principal balance much more quickly. When you are going to transfer your balance over, you need to look a long enough introductory rate period that it will be worth the effort of transferring your card. Unless you can pay the card off in the next six months, you will want to look for a period of a year or more. Many offers will do a fifteen-month introductory period. This gives you enough time to really reduce the principal and to move forward on your debt payment plan.
2. Tip 2: Pay Attention to the Actual Card Rate
Another thing you need to consider is what the rate will be after you have used up the introductory period. Although this may seem silly, especially if your debt payment plan shows that you will be out of debt by the time the period ends, you do not know what will happen in the future. You may have to put your debt payment plan on hold to deal with a financial emergency. Also, you cannot assume that you will still have the opportunity to transfer to another zero percent interest rate on your card. If you have multiple card offers to choose from, then choose the one that has the lowest interest rate after the introductory rate expires. This will put you in a better position if you end up having to pay the interest later on.
3. Tip 3: Don’t Pay Balance Transfer Fees
Another important tip is to avoid paying balance transfer fees. There are enough credit card offers with no balance transfer fees in the first month, so that you do not need to pay a transfer fee, if you have a good credit score. The fees are usually between three to five percent of your balance with a minimum transfer fee. This can add up quickly if you are transferring large balances or if you continue to transfer from one card to another. Look for the cards that have no balance transfer fees and apply for those first. Otherwise your transfer fee may add up to a few months of interest that you are paying up front.
4. Tip 4: Stick to Your Debt Payment Plan
Another important part of transferring your balances is to make sure you stick to your debt payment plan and to make adjustments as necessary. If your debt payment plan is set up so you pay off your highest interest rates first, you may need to make adjustments on the order of the cards you are paying off. You should also use the plan when you are deciding which balances you transfer to a zero interest rate card. When you do have a zero interest rate, you want to add your extra payments to the loan with the highest interest rate to save you money, but if the introductory interest rate expires, you will need to adjust your debt payment plan so that you are paying off the highest rate first. Do not be tempted to lower the amount you are putting towards your debt payment plan because you are not paying interest on some of the loans.
5. Tip 5: Stop Using Your Cards
The final key to making this plan work is to stop using your cards completely. One reason, credit cards offer a free introductory interest rate is to tempt you into putting more money on the card. They want you to run up the balance, so they can make money off of you once the introductory rate expires. You should either cut up the card you transfer the balance from or freeze it in a block of ice, so that you do not use it unless it is an absolute emergency. (You should have an emergency fund in place to cover this, so you do not need the card at all.) Stop carrying your credit cards with you, so that you are not tempted to put money on the new card. If you keep using your cards while you are trying to get out of debt, you will not make any real progress on getting out of debt. A budget is key to making this work. Take the time to budget each month so you can get out of debt more quickly.