Should You Transfer a Balance to a New Credit Card?October 19, 2010 - 1:53 pm
Great balance transfer deals used to be everywhere. Credit card companies were lining up to get you to move your balances to their credit card. In the current economic recession, these balance transfer offers aren’t so widespread, but they’re still out there. If you’ve come across a balance transfer and you’re wondering whether to apply for the credit card, here’s what you should consider.
Is the interest rate lower than the one you currently have?
Generally, the only reason you’d move your balance to another credit card is to take advantage of a lower interest rate. That way, you can save money on the finance charges you pay and manage to pay off your credit card balance sooner rather than later.
How long does the promotional rate last?
Balance transfer credit cards often come with an introductory or “teaser” rate. These promotional rates must last a minimum of six moths, but can last longer. The longer your introductory rate lasts, the better. You’ll have a greater chance at paying your interest rate off. However, if you don’t think you’ll afford to pay off the balance by the time the rate expires, think twice about transferring your balance.
What’s the post-promotional interest rate?
If the balance transfer credit card has a promotional rate, make sure you find out what the rate will be after the promo rate expires. If the new rate will be higher than the rate you’re currently having, you might not get any savings if you can’t pay your balance transfer before the good rate expires. Don’t make on transferring to a different credit card when your promo rate expires. The credit card landscape is always changing and you’re not guaranteed to get a better rate six months from now.
What’s the balance transfer fee?
Though you might get some interest savings by transferring your balance, the balance transfer fee you pay could negate that savings. A balance transfer fee is assessed whenever you move a balance from one credit card to another. The fee ranges from 2% to 5% of the balance you transfer and is added to your credit card balance. You use a search engine to find a balance transfer calculator and see whether the balance transfer will save you money.
How many credit cards do you already have?
Deciding to transfer a credit card balance about more than whether you’d save money. It’s also about being able to manage your credit cards and debt. There’s no magic number that indicates whether you have too many credit cards. Instead, you have to use your own discretion. How well are you managing the credit cards you have? Are you juggling too many credit cards? If you answer yes, getting another credit card probably isn’t a good idea.
Impact To Your Credit Score
Opening a new credit card will probably hurt your credit score, especially if you already have a high average credit age. Adding a brand new credit card will lower your average credit age, which is 15% of your credit score.
If the balance transfer takes up a lot of your credit limit, your credit score will take a hit since credit utilization – how much of your available credit is being used – is 30% of your credit score.