If you’re carrying a credit card balance with a high interest rate, a balance transfer can save you big money. But it can also get you into more high-interest debt if you’re not careful.
Credit card companies are once again offering attractive balance transfer deals – the likes of which haven’t been seen in four years. In fact, some are offering 0% interest for up to 21 months on the balance transfer and new purchases.
The best balance transfer deals are offered to people with good to excellent credit – typically a credit score around 750 or higher.
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How a Credit Card Balance Transfer Can Save You Money
Suppose you have a balance of $4,000 on your credit card with an APR of 17%. If you transfer your balance to a credit card with a 0% interest rate for 12 months (with a transfer fee of 4%), you’ll save $520 in interest after your balance transfer fee of $160.
Sounds good right? Yes!
How a Credit Card Balance Transfer Could Put You Deeper in Debt
Unfortunately, some people put themselves into deeper debt after they’ve done a balance transfer. Here’s how:
- They kept making charges on their original credit card or made charges on their new card.
- They made a late payment (yes, even just one late payment!), which caused their introductory rate to disappear.
- They fail to pay off the new card before the introductory period ends, meaning that their balance is now charged a much higher rate – up to 20.99%.
How to Make the Most Out of Your Credit Card Balance Transfer
- Create a spending plan (a budget)
- Pay off your credit card balance before the introductory period ends.
- Pay your monthly payments on time.
- Don’t add any new debt.
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