7 Balance of Account Transfer Pitfalls to Avoid

If you are overwhelmed by your credit card debt, you might consider balance of account transfer. A recovering economy, 0% credit card offers and rising levels of credit card debts provide an ideal landscape for balance of account transfer. Actually, an ideal balance of account transfer deal can save an average household that has a credit card debt of $7,126.

Since 2013, the costs of balance of transfer have dropped by 13%. Currently, transferring a $5,000 balance costs $326 on average. This balance is usually paid off over a period of 24 months. Nevertheless, lack of understanding by consumers prevents them from taking advantage of savings that balance of account transfer brings along. 

However, an ideal candidate for a balance of account transfer is a person that is serious and ready to pay off debt. It’s also an individual that has a clear plan on how to pay off debt within the provided grace period. If you think you are that person, read on to learn pitfalls that you need to avoid.

1.     Failure to look for 0% on purchases and balance transfers

Some people make this terrible mistake when it comes to balance of account transfers. There are cards that offer consumers 0% on balance transfers without offering the same on subsequent purchases. Additionally, they require consumers to pay off the amount of balance transfer first thereby leaving new, higher interest rate fees buried underneath. For instance, if a customer transfers $10,000 and charge $15 on a new card for a beautiful dress, their payments moves towards $10,000 first. However, $15 accumulates an interest fee at an outrageously high interest rate.

2.     Failure to consider the transfer fee

It’s important to always read fine prints when completing a balance of account transfer. Some credit card companies seduce consumers with low interest rates while charging them a balance of account transfer fee. Normally, this fee amounts to a specific percentage of the transferred balance. For instance, a 5% fee on a balance of $5,000 is $250. That means you will notice a sudden growth in your credit card debt even before you use the new credit card. Clearly, factoring in this fee means you may not have sufficient credit on the new card for transferring the balance.

3.     Not considering your credit score

On average, your debts’ lifespan accounts for 15% of your credit score. This implies that closing an old credit card and transferring its balance to another card slashes the average length of the history of your account. Carrying high balances on credit cards does not make sense as well since 30% of the overall score is dependent on the account balances. Low balances on numerous cards provide high level of utilization on a new card when debt is transferred to one card. With a low credit score, borrowing is more expensive. Thus, you might end up paying more when you take out another loan in the future.

4.     Not keeping in touch with reality

Some people fail to consider the reality or their situations when doing a balance of account transfer. For a person that is struggling to pay the minimum amount or one that is carrying huge debts, balance of account transfer may not be the ideal solution. Shifting obligations to another account won’t fix the real financial problems. In fact, this can plunge you into more problems if lenders and creditors suspect or realize that managing finances is a problem to you.

5.     Not planning

In most cases, interest rates increase significantly after the provided grace period or promotional period. Failure to plan usually trips up many people than anything else. If you fail to pay off the balance within this period, you will not benefit from the balance of account transfer. It’s therefore important to plan how you will pay off the debt within the intro period, mostly 24 months, or end up paying an outrageously high interest rate, which can be up to 21.75% p.a.

6.     Not being choosy

Just because a credit card company offers you a teaser rate doesn’t mean that this rate is guaranteed. It’s therefore important that you ensure the 0% rate offer remains 0% when you receive the card. It’s also crucial that you shop around to get a credit card that for instance does not have an annual fee. Also consider perks like fraud liability and cash-back plans coverage.

7.     Overspending on a new card

In some cases, consumers try to earn more rewards by spending on their new cards. Unfortunately, this beats the purpose of balance transfer, which is to get everything paid off faster.

Generally, balance of account transfer can help in reducing debts. However, it’s important that you think it through, weigh the available options and be disciplined on paying off the balance.

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