So, you’ve decided to relieve yourself of growing credit card debt by using a balance transfer card? Congratulations! For people with good to excellent credit, this can be a great way to do that. The reason why, is because your new balance transfer card doesn’t come with hefty interest rates during the 0% APR intro period. However, just getting your new card and transferring all of your debt onto it isn’t going to be enough. There’s quite a few more steps that you need to take before you can really call yourself debt free. There is a life after completing a credit card balance transfer
Luckily, the steps to utilizing your balance transfer card are right here, all you have to do is continue reading.
1. Tips to Keep you from using your credit card too much
Try putting your card in the freezer! Okay, you don’t actually have to do this and you don’t actually have to cut it up into a million pieces either, but you do have to have the self-control not to use it for new expenses. Ever. There are several reasons why.
The first reason is because new purchases on your balance transfer card only puts you further into debt. It may definitely be tempting, but you have to work to remind yourself why you got this balance transfer card in the first place. It definitely wasn’t just to move your debt from one or two old cards to a new one, was it?
The second reason is because new purchases might not qualify for your fleeing 0% APR deal. New purchases can often be charged with the card’s standard interest rates. So if you’re really considering making a new purchase, look into whether or not your card also offers a 0% APR intro period for new purchases.
The Final reason why it’s a smart idea to avoid putting new purchase onto your new card is because the payments you make on your new card may not fully go towards your new purchases. Credit cards have the freedom to allocate your you payments to whatever debt you have. That means that your minimum payment may go towards your balance with the 0% APR, while your new charges rack up interest.
2. Autopay and Pay More than the Minimum Balance on your card
Autopay is great for all credit cards, because it ensures that you won’t missing payments and incur any late fees. Still, while it might feel like you’ve got all the time in the world to pay off your debt, you don’t. That’s why making payments that are more than the minimum is always best. Take advantage of that 0% APR into period (they usually last between 6 and 18 months) while you can. It can lead to a significant reduction in your debt.
The best way to do this is to budget for how much you can really pay per month. If it’s $200, great. If it’s $400, even better. Once you’re making those payments, and not putting any new charges on your balance transfer card, you’ll get to watch your debt steadily decrease. If you begin to sense that you can actually afford a larger monthly payment, simply increase your scheduled payment to something more. It’s easy!
3. Should you close old Credit Card Accounts?
Once you take all the debt off of your previous cards, it might be tempting to close your accounts throw all of them into the shredder to swear off credit cards for good. That would be ill-advised, however, for a number of reasons.
First, you could actually hurt your credit score. The reason why is because your credit is only as good as your credit history. If you close a credit card, you’ll lose all the payment history with it.
On top of that, your old credit card helps balance out your new balance transfer card in terms of average length of credit history. If one card is 5 years old, and you just got your balance transfer card, your credit history is still 2.5 years. If you close out your old card, your credit history falls to under a year.
4. Set a Reminder for When Your Credit Card Balance Transfer Expires
It’s utterly crucial for you to know when the 0% APR intro period on your balance transfer credit card ends. The reason why is because if you don’t pay off your balance by the time that period ends, any remaining balance will be charged with the standard interest rate. Worse that than, some cards can also charge you all the interest you have accrued and didn’t pay during the intro period. It’s called deferred interest, and it can definitely punch a sizable hole in your debt free plan.
Look, if you don’t manage to pay off the entirety of your debt by the time to into period ends, you wouldn’t be the first. Luckily there are some options. One option is to take out yet another balance transfer card and move the rest of your debt to a new card with a new 0% APR promotional period. Just keep in mind that you can’t transfer balances between cards from the same issuer.
Another option is to take out a personal loan. If you had good to great credit before taking out your balance transfer credit card (which you likely did because it’s hard to get one without good credit), then you probably still have good credit now. Especially if you’ve been steadily paying off your card. If that’s the case, you could also consider taking out a personal loan to get rid of your credit card debt once and for all. Your personal loan will likely offer lower interest rates than your card will and they tend to be a bit more flexible than balance transfer cards.
5. Correct Budgeting with a Credit Card
This cannot be stressed enough. You have given yourself the opportunity to get out of debt with your balance transfer card, and now it’s time to make sure you never go back. Take a look at your income, a look at your expenses, and really break down what you can afford to pay, save, and everything in between each month. It’s a daunting task to do alone, but luckily there are a number of apps, sites, and more that can help you along the way.
The balance transfer card was just the beginning. It’s up to you to make sure that you use it the right way, and stay out of credit card debt for good.