So, you’ve decided to try to relieve yourself of your credit card debt by utilizing a balance transfer card. For people with good to great credit, this can be a great way to do that.
The reason why, is because your new balance transfer card doesn’t come with hefty interest rates during the incredibly common 0% annual percentage rating intro period. Still, it is crucial to know that simply getting your new card and transferring all of your debt onto it isn’t going to be enough.
There’s quite a few more steps that you need to take before you can really call yourself debt free.
Luckily, the steps to utilizing your balance transfer card are right here, all you have to do is continue reading.
Put your balance transfer card on ice
The one important thing to keep in mind when first getting a balance transfer card is to not use it. Ever!
There are several great reasons why.
The first reason is because new purchases on your balance transfer card only puts you further into debt. It may definitely be tempting, but you have to work to remind yourself why you got this balance transfer card in the first place. It couldn’t be to just move your debt from one or two old cards to a new one, was it?
The second reason why is because any additional purchases you put on your new balance transfer card could very likely not enjoy the 0% APR deal that the rest of your balance has. New purchases can often be charged with the card’s standard interest rates. So if you’re really considering making a new purchase, look into whether or not your card also offers a 0% APR intro period for new purchases.
The Final reason why it’s a smart idea to avoid putting new purchase onto your new card is because the payments you make on your new card may not fully go towards your new purchases. Credit cards have the freedom to allocate your you payments to whatever debt you have. That means that your minimum payment may go towards your balance with the 0% APR, while your new charges rack up interest rates. That’s why it is always best to just leave your balance transfer card out of you wallet and in a big block of ice if you can.
Do NOT close your old credit cards
After you transfer all the debt off of your previous cards onto your new card, it might be tempting to close your accounts throw all your cards of them into the shredder to swear off credit cards for good. That would be a very bad decision though for a number of reasons.
Closing credit card accounts that you have had open for years could have a really negative impact on your . The reason why is because your credit is only as good as your credit history. If you close a credit card, you’ll lose all the payment history with it.
On top of that, your old credit card helps balance out your new balance transfer card in terms of average length of credit history. If one card is 5 years old, and you just got your balance transfer card, your credit history is still 2.5 years. If you close out your old card, your credit history falls to under a year.
Set up your autopay and pay as much as you can
Autopay is great for any bill and credit card account you own. The reason for that is because autopay ensures that you won’t be missing payments which can lead to late fees and other fees.
Still, while it might feel like you’ve got all the time in the world to pay off your debt, you don’t. That’s why making payments that are more than the minimum is always best if possible. Take advantage of that 0% APR introduction period while you can. Typically, these intro periods only last six to 18 months, so take care of as much as you can.
The best way to do this is to budget for how much you can really pay per month. If it’s $300, great. If it’s $600, even better. When you’re making those payments, and not putting any new charges on your balance transfer card, you’ll get to watch your debt steadily decrease. If you begin to sense that you can actually afford a larger monthly payment, simply increase your scheduled payment to something more. It’s easy and can be incredibly satisfying.
Know exactly when your promotional period ends
It is incredibly important for you to know the precise date when your 0% APR intro period on your balance transfer credit card ends. The reason why is because if you don’t pay off your balance by the time that promo period ends, any remaining balance will be charged with the standard interest rate. Far worse still, some cards can also charge you all the interest you have accrued and didn’t pay during the intro period. It’s called deferred interest, and it can definitely punch a sizable hole in your debt free plan.
If you aren’t able to pay off the entirety of your debt by the time to into period ends, you wouldn’t be the first person to fall short of that goal. Luckily there are some options. One option is to take out yet another balance transfer card and move the rest of your debt to a new card with a new 0% APR promotional period. Just keep in mind that you can’t transfer balances between cards from the same issuer. It makes it a bit more difficult, especially if your credit has taken a hit since you took out your previous balance transfer card, but it is definitely possible!
Another option is to take out a personal loan. If you had good to great credit before taking out your balance transfer credit card (which you likely did because it’s hard to get one without good credit), then you probably still have good credit now. Especially if you’ve been steadily paying off your card. If that’s the case, you could also consider taking out a personal loan to get rid of your credit card debt once and for all. Your personal loan will likely offer lower interest rates than your card will and they tend to be a bit more flexible than balance transfer cards.
Whatever you end up doing, it’s important to have a plan in the event that you do fall short of your goal.
Make your budget and stick to it
Putting an emphasis on your budget while you are paying off your balance transfer card cannot be over emphasize. You have given yourself the opportunity to get out of debt with your balance transfer card, and now it’s time to make sure you never go back to the place of credit card debt ever again.
Take a look at your income, a look at your expenses, and really break down what you can afford to pay, save, and more on a month-to-month basis.
The balance transfer card was just the beginning. It’s up to you to make sure that you use it the right way, and stay out of credit card debt for good.