If you’re struggling to pay your credit card bills, it might seem like a good idea to transfer your balances to a 0% interest card while you get yourself back in the black.While shifting your accounts to these cards looks like a smart way to avoid accruing even more debt, more often than not these credit card balance transfers end up being fool’s gold.
Here are a few situations where a transfer is a step in the wrong direction:
You’ve transferred your balance before
When you’re applying for a loan, the last thing you want your potential lender to see is a history of balance transfers on your record. Multiple transfers suggest a chronic inability to keep up with your credit card payments and will be a major red flag for anyone considering loaning you money. Rather than continually consolidating your debt onto lower-interest cards, try looking for help at the NFCC or other nonprofit agencies.
Your interest rate is less than 10% already
Although a 10% APR is definitely more than 0%, you should take this fact into account: every credit card provider levies a fee of at least 2% of the total amount being transferred. This means that right out of the gate you could be paying more (in fees) to transfer your balance than the interest you’d otherwise pay on your current account. When you also factor in that many of these 0% interest rates turn into double-digit APRs after a few months, it’s probably better to just stick it out with your current provider.
You can only make minimum payments
As you’ve probably heard before, making only minimum payments on your credit card balance is the worst thing you can do to yourself financially. On most credit cards, these baseline payments are calculated in such a way that it’s mathematically impossible for anyone to pay off an account by sticking to them. This free fall into debt will only be accelerated if you transfer your balance to a card whose interest will – within just a few months – likely be double what you’re currently paying.
You want to keep multiple cards
The only way a balance transfer can help you out is if you consolidate all of your funds onto one no-interest card. This means giving up the freedom of using low-limit and rewards credit cards for different purchases. What happens if you keep another account open after your transfer? Well, according to the CARD act, creditors are allowed to apply all minimum payments to the account with the lowest interest rate. This means that you’ll be forced to pay off the 0% interest card while the debt on your other cards continues to grow.
Transferring your credit card balance isn’t always a bad idea, but you should give it some serious thought before making the move. If you’re confident that you can pay off your balance before your new card’s no-interest period expires, or if you already have good credit and just want to take advantage of the promotional APR, then a transfer might be the right step to take. However, if you’re in any other situation it will almost always be a better idea to seek credit counseling to help alleviate your debts instead.