Credit card balance transfer is a tool that must be used wisely. Here are our tips if you ever need to use it.
At milesopedia, we encourage our readers to first be good managers of their personal finances before getting started with the points. For example, to have an excellent credit report, it is important to master different concepts:
- Being punctual when time comes to pay our balance
- Having a reasonable “available credit” ratio
- Our credit history
- The types of credit held
- New credit applications
A lower interest rate
Most credit cards issuers offer balance transfer with low interest rates from time to time. The objective is to attract your customers by offering rates from 0% to 5%, well below the current rates of 19% and more.
This lower interest rate can be a lifesaver if you are currently paying interest on your credit card balance. However, make sure you read all the terms and conditions related to the balance transfer.
Terms and conditions
There are different terms and conditions that govern a credit card balance transfer, and not complying with them can be counterproductive!
Balance transfer fees
Credit card balance transfer offers often come with fees (around 1-3% of the transferred amount). These fees will depend on each credit card issuer, but also your province of residence.
For example, here is an offer at 0% for 12 months for residents outside Quebec:
Balance transfer period
Generally, you will be able to make a credit card balance transfer for a limited period of 90 days from the date the account is opened.
This is a way, for example, of consolidating different credit card balances on the same card. So plan your move well so that you don’t miss the promotional period.
Duration of the promotional interest rate
The promotional interest rate for balance transfers is usually between 6 and 12 months.
This means that your transferred balance will only benefit from the promotional interest rate for that term. Beyond this period, the standard rates will apply.
Again, make sure you plan your balance transfer well by having a plan to pay off your balance before the promotional rate term ends.
Missed payment clauses
Make sure you do NOT miss ANY payments on your new card.
Indeed, the terms and conditions often come with “rates in case of default”: if you miss several consecutive payments, the promotional interest rate will cease to apply and the rates will rise to the level of the standard rates.
Transferring a credit card balance can be a good backup solution. However, you must be very careful with how you manage this debt. Here are 3 more tips to follow.
Plan your repayments
Make a game plan to repay your debt by scheduling regular payments over the duration of the promotional rate (6-9-12 months).
Have you transferred $6,000 and are taking advantage of a 0% promotional rate for 12 months? Schedule payments of $500 per month for the next 12 months to completely erase your debt.
Temporarily stop using credit
The credit card balance transfer should not be an opportunity to continue on the path of indebtedness. Take a break from credit while you pay off your current debt.
No purchases on the new card
To get a clearer picture of your finances, don’t make any new purchases with your new card . Just pay back the transferred balance gradually according to the established schedule.
Make an appointment with a specialist
Don’t wait until you’re in trouble to make an appointment with a personal finance specialist. This could start with your bank advisor who can offer you financing solutions that are much cheaper than credit cards, for example!