Five Ways to Protect Your Balance Transfer

Credit cards have become an integral aspect of American finance, and they are an excellent way for you to save money through rewards and discounts on things that you buy on an everyday basis. But you should also be aware that a high interest rate can quickly consume any potential savings that you stand to gain. If you find yourself in a position where you feel like you can benefit from a lower interest rate, then a balance transfer may be the solution to your problem. When you do a balance transfer, a new lender pays off your old debt, preferably for a lower interest rate. Keep in mind, however, that you still need to be mindful of exactly what you’re getting yourself into, so here are five ways to protect yourself in the event of a balance transfer:

Don’t Fall for the Bait and Switch

Predatory lenders are known to send out offers that claim you are pre-approved for a certain amount, but when you actually fill out the application, you find that you are eligible for a lesser amount. This can leave you with the same debt you were in before if you intend to transfer all your previous balances to this card. Additionally, this can cause you increase your credit limit, which will significantly and immediately impact your credit score. If you are about to make a major purchase, like a house or a car, you definitely need to consider using another lender.

Compare Offers

Although this seems like common sense, surprisingly, many people don’t use this simple piece of advice. So if you think you’re getting a low enough interest rate from the first envelope you open, keep in mind that doing a little comparison shopping can save you thousands of dollars in the long run. One of the most efficient ways to see if you’re getting the best deal is to check out some credit card comparison sites.

Calculate the Cost and Fees

You aren’t the only one who benefits from transferring your credit card balances. Credit card companies normally charge a fee for this service. A lender can charge anywhere from three to five percent of the total amount you are transferring. The fee that you pay to transfer your balance may make it disadvantageous for you to transfer your balance at all because of the debt you have accrued. You should also consider the annual fee. Coughing up an extra 100 dollars a year may not be worth it in the long run.

Don’t Close Your Old Accounts Immediately

Once you have transferred your balance form one card to another it’s tempting to throw that old card away and close the account, but this can actually work against you. Your FICO score is partially determined by the length you keep your credit lines open. Furthermore, all past and present credit lines are used to determine the average age of your credit history, so when you close an older account it ages your history down, and the algorithm interprets that negatively.

Consider Uncapped Balance Transfer Fees

In the past, there was a cap on the amount of balance transfer fees. For instance, there used to be a limit of 50 to 75 dollars on any amount of debt that was transferred. So even though the standard rate was three percent, anything over 75 dollars was capped, but in 2008, thing changed. In 2008, many credit card issuers eliminated those caps, and some even increased balance transfer fees. That means that you need to do your due diligence to make sure that the balance transfer fees don’t wipe out any potential savings.

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