Our friend Denise Richardson, of givemebackmycredit.com, has posted an article with five common mistakes that consumers make when transferring debt. Transferring your debt from a high interest credit card to a new card with lower interest should raise red flags. Following these five tips will help prevent you from having to pay more money and going further in debt as well as saving your credit score.
1. Closing the Original Account:
After transferring the balance to a new card, you should refrain from completely cancelling the account. 15% of your credit score is made up of the length of time you keep accounts. Cancelling accounts will lower your credit score and change the way it’s calculated.
2. Not Confirming the Spending Limit Ahead of Time:
A credit card company will not notify you of the spending limit you qualify for until your initial application is approved. After the application is approved, you may call to inquire about your spending limit at any time. It is vital that you know what your spending limit is on the new card before you initiate a balance transfer. If the amount of the balance transfer is greater than the spending limit on your new credit card, you may lose the low introductory rate by going over the spending limit with your transfer.
3. Not Expecting Balance Transfer Fees:
Some credit cards will charge you a substantial sum to transfer your balance, sometimes as much as 5%. For example, if your balance is $5,000 you could pay about $250 in fees.
4. Ignoring the New Card’s Default Interest Rate:
Initial low interest rates on a new credit card are temporary and will default back to a higher rate. The new interest rate can be as high as your previous card that you transferred the balance from.
Should this occur, you will be left repaying your debt under the same unfavorable terms you thought you had left behind. If you know your credit score, you can call the credit card company and ask which interest rate you qualify for.
5. Losing the Introductory Rate;
Making a late payment or going over your limit on a new card can result in early termination of the low introductory interest rate. Be sure to read the fine print to determine what stipulations apply.
If you have questions or concerns, feel free to contact us through our website or by calling 205-879-2447.