Many credit cards offer 0% APR promotional financing on balance transfers, allowing you to move debt from high-interest cards onto one that offers zero interest for an introductory promotional period. These promo periods are nothing to sneeze at. They can last as long 21 months.
So what’s the catch? The truth is that balance transfer offers can be incredibly valuable, but only when you use them properly and avoid making some common mistakes.
1. Assuming You’ll Get the Best Balance Transfer Deal
You might not always be approved for the balance transfer card you want. For example, the best 0% APR deals are only given to those with excellent credit. While you may have had excellent credit in the past, having a large balance for a long time might have caused your credit score to slip. (See also: One Ratio Is Key to a Good Credit Score)
Even if you are approved for the card, it may come with a credit line that’s substantially lower than you need. If that’s the case, you may want to consider applying for a second balance transfer card.
2. Trying to Transfer a Balance From the Wrong Card
Consumers sometimes don’t realize that you can’t transfer a balance between two cards issued by the same bank. So if you have an outstanding balance on your Chase Freedom Unlimited card, you can’t open up a new Chase Slate card and expect to transfer your balance to it.
Keep this in mind before you apply for a balance transfer card. Every time you apply for a credit card your credit score takes a little hit. It can usually recover fairly quickly, but there’s no need to ding it unnecessarily for a card that doesn’t even serve your needs. (See also: How to Choose a Balance Transfer Card)
3. Overlooking Balance Transfer Fees
Almost all credit cards charge a fee when you make a transfer, except for a few notable cards that don’t charge balance transfer fees. Typically the fee is 3% of the transfer amount, but it could be as high as 5%. If your balance is small enough that you can pay it off within a few months, you’re probably better off not transferring it to a new card.
4. Delaying Your Balance Transfer
You’ll usually have 60 or 90 days to transfer your balance to the new card. After that the deal expires. Transfer the balance as soon as you can to get the most use of the promotional 0% period and cut down on the number of days your balance is accruing interest on your old card. Transferring your balance early will also ensure you don’t forget about the deal and miss it altogether.
5. Misunderstanding How New Purchases Are Treated
If you make a new purchase on a balance transfer card, it will be subject to the card’s regular interest rate unless the card specifically offers 0% interest on purchases, too. That means you’ve got two balances on the card: the interest-free transferred balance and the new purchase balance.
By law, credit card issuers must apply any payments above the minimum to the balance with the highest interest rate first. But they can apply your minimum payment to whichever balance they choose, which of course will be the one with no interest charges. As a result, you’ll still incur interest on your new purchases.
Bottom line: It’s best not make new charges on the balance transfer card unless it offers interest-free financing on new purchases as well.
6. Paying Late
It’s always important to pay your bills on time, but it’s even more so with promotional balance transfer offers. Pay late and you may find your 0% offer revoked, subjecting you to the card’s regular higher interest rate way before you’re ready for it. Add to that late fees the card may impose, and you’ve got an expensive mistake.
7. Stopping Payments on Your Old Card Too Soon
What some cardholders don’t realize is that your balance transfer may not be completed immediately. It can take up to two weeks to process the transfer. Even if you’ve initiated a balance transfer, you will still need to make payments on your old card until you’ve confirmed that it’s been paid off. Don’t worry about overpaying — credit cards are very good about refunding you any overage you might have submitted during the transition.
8. Using a Balance Transfer Offer to Rack Up More Debt
Those 0% APR balance transfer offers are your chance to get out of debt, but unfortunately, many people squander that chance and continue to rack up debt. They can’t resist the temptation of having an empty balance on their old card, so they keep making charges on it that they can’t pay off right away.
Instead, use balance transfer deals as part of a comprehensive debt repayment plan. You should view the end of these limited time offers as a deadline for paying off your entire balance, knowing that 100% of each payment you make during this time will go toward your principle.
See also: 5 Ways to Pay Off High Interest Credit Card Debt