You may be one of the many who ran up their credit cards over the Christmas holiday with every intention of paying it off by the spring. A lot of people look ahead to their anticipated tax refund as the source of funds to pay off their holiday debt, and some vow cut back drastically on their other spending until their cards are paid off.
But stuff happens. Emergencies come up or you find a “better way” to spend your refund, so, six months into the New Year, you’re still sitting on a pile of high interest debt barely able to keep ahead of the growing minimum payment. No problem, you think, I can just transfer the balance to a 0% introductory rate card. Good idea? Maybe – it really depends.
Of course, this assumes that your credit is worthy enough to qualify for a 0% balance transfer – and that’s not always a given. Before considering it as a solution, you really need to check your Credit. While 0% offers abound, not everyone qualifies for the best terms.
You could apply only to find out that the 12 month period has been shortened to 6 months, or the 0% introductory APR is actually 9% – based on your credit standing. That could put a major wrench into your plans to pay off your debt as you had hoped. While it still would be an improvement over your current situation, it is likely going to be a temporary solution.
What a lot of people are also finding is that the banks have become much stingier with credit limits. If you have $3,500 of credit card debt, and the balance transfer is limited to only $1,500, you will wind up with two debts to manage. The benefits of a partial transfer might only help you marginally. The bottom line is, before you jump into a balance transfer, you should know the extent of your ability to qualify for the best possible terms.
When a Balance Transfer is a Good Idea
A balance transfer should only be considered in the context of a strict plan that you can follow; otherwise you could find yourself play balance-transfer roulette trying to postpone your debt spiral by continuing to transfer your balances. And that can only work if you can continue to quality for 0% offers. Anything short of a solid plan and the best balance transfer terms would not be considered a good idea.
A balance transfer is a good idea if:
- You can qualify for the 0% APR
- You can qualify for the longest introductory period – 12 months minimum
- Your balance transfer fee is 3% or lower
- You are able to continue at the same level of payments or higher that you are making on your current credit card; if you simply make the minimum payment on the balance transfer, you failed
- You project that you can pay down your debt to less than 20% of the current amount owed
- You don’t make any additional purchases on the balance transfer card and you pay your other credit card balances in full each month
- You immediately start saving so you can avoid running up debt in the next holiday season