Avoid the Pitfalls of a Balance Transfer

Written by Miranda Marquit on April 21, 2014
balance transfer

A balance transfer is typically considered one of the best ways to consolidate debt so that you can better manage your finances and pay off your obligations at a lower rate.

While a balance transfer used in the right way can be a great financial tool, there are also some pitfalls. Here are some of the things to watch out for when you decide to use a balance transfer:

Short Introductory Period

One of the issues you have to watch out for is a short introductory period. Once that period is over, the interest rate on your loan can shoot up much higher. That can mean trouble for your finances. If you transfer a balance, and the intro period is only six months, you might end up with a high rate if you can’t pay off your debt fast enough.

Pay attention to the introductory period so that you can plan accordingly and avoid the charges that come with a high interest rate once that period ends.

Deferred Interest

In some cases, a balance transfer comes with deferred interest. This is especially common when you use balance transfer checks. Deferred interest means that, even though you have 0% rate now, the interest you would have accrued is still figured. If you haven’t paid off your balance by the end of the intro period, that interest is added to your balance. You need to read the fine print to make sure that you aren’t dealing with deferred interest. If you are, it is especially important that you pay off your balance transfer before your interest period is up.

Balance Transfer Fees

Finally, make sure that you pay attention to the balance transfer fees that are charged. Many cards charge between 3% and 5% of the amount you transfer. If you transfer a large amount, this fee can get hefty. If you have a short introductory period, there is a chance that the fees you pay will amount to more than your interest savings. Run the numbers before you commit to a balance transfer.

If you can, it might make sense to do your best to find a card with a longer introductory period. That way, you have more time to pay off your balance, and your interest savings will be large enough to offset your balance transfer fee.

Make it a point to understand the terms of your balance transfer before you fill out the application. With the right planning, a balance transfer can be a great way to improve your finances and pay off your debt.

Posted Under: Credit, Featured
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About Miranda Marquit

Miranda is a freelance writer and professional blogger specializing in financial topics. Her work has appeared in numerous media, online and offline. Her blog is Planting Money Seeds.


Apr21

A balance transfer is typically considered one of the best ways to consolidate debt so that you can better manage your finances and pay off your obligations at a lower rate.

While a balance transfer used in the right way can be a great financial tool, there are also some pitfalls. Here are some of the things to watch out for when you decide to use a balance transfer:

Short Introductory Period

One of the issues you have to watch out for is a short introductory period. Once that period is over, the interest rate on your loan can shoot up much higher. That can mean trouble for your finances. If you transfer a balance, and the intro period is only six months, you might end up with a high rate if you can’t pay off your debt fast enough.

Pay attention to the introductory period so that you can plan accordingly and avoid the charges that come with a high interest rate once that period ends.

Deferred Interest

In some cases, a balance transfer comes with deferred interest. This is especially common when you use balance transfer checks. Deferred interest means that, even though you have 0% rate now, the interest you would have accrued is still figured. If you haven’t paid off your balance by the end of the intro period, that interest is added to your balance. You need to read the fine print to make sure that you aren’t dealing with deferred interest. If you are, it is especially important that you pay off your balance transfer before your interest period is up.

Balance Transfer Fees

Finally, make sure that you pay attention to the balance transfer fees that are charged. Many cards charge between 3% and 5% of the amount you transfer. If you transfer a large amount, this fee can get hefty. If you have a short introductory period, there is a chance that the fees you pay will amount to more than your interest savings. Run the numbers before you commit to a balance transfer.

If you can, it might make sense to do your best to find a card with a longer introductory period. That way, you have more time to pay off your balance, and your interest savings will be large enough to offset your balance transfer fee.

Make it a point to understand the terms of your balance transfer before you fill out the application. With the right planning, a balance transfer can be a great way to improve your finances and pay off your debt.

About Miranda Marquit
Miranda is a freelance writer and professional blogger specializing in financial topics. Her work has appeared in numerous media, online and offline. Her blog is Planting Money Seeds.