When you're facing overwhelming credit card debt, a balance transfer offer that allows you to move your debt to another, lower-interest credit card can be tempting. These offers are particularly popular around the beginning of the year when credit card companies know that many people are struggling to pay off holiday debt.
Moving your balance to a lower-interest card can help you pay off your debt faster because more of your payment will go towards the principal and less to interest.
However, besides considering differences in interest rates between your current card and the new card, there are other factors you should look at:
-- Does the new card have lower fees than your current one? Some cards have no fees at all. Look for a card that doesn't charge a balance transfer fee.
-- When does the introductory rate end and the regular annual percentage rate take effect? Usually this is anywhere from 12 to 15 months after you get the card. If you don't pay off your balance by then, you could end up paying a higher rate than you are now.
-- If you don't pay off your balance during the introductory period, can the higher APR be charged retroactively? This information can be found somewhere in the disclosures, but it may take some studying of the fine print.
-- Will getting a new card affect your credit score? Generally, opening a new credit card won't have a significant long-term impact on your credit score unless you've obtained other credit products recently.
-- Does the card have perks like rewards programs or cash-back offers? As long as you're getting a new card, you may as well get one that offers some kind of advantages.
Remember that while transferring your credit card balance to lower-interest card can help you pay off your debt, you still have to be diligent about paying as much as you can each month. You definitely need to pay more than the minimum balance due to make headway in paying down your debt.
If you don't think you can pay off your debt during the introductory period, there may be no point in a balance transfer, and it could actually put you in a worse situation. It may be a good idea to seek legal and/or financial advice to help you deal with your credit card debt.
Source: Military Times, "Paying off debt: A credit card expert’s guide to balance transfers," Jan. 29, 2017