20 Apr Credit card balance transfer strategies

 Q. I have credit card debt of about $5,000 and my interest rate is 12.99 percent. I’m thinking about doing a balance transfer to a brand new card. What should I watch out for?

A. Transferring your credit card balance to a no-interest card can be a great strategy to save money, but it’s not the end-all. Your success with this method will all depend on your persistence with payments during the introductory time frame.

These offers range from six months to 18 months of no interest charges, said Beverly Harzog, credit card expert and author of “The Debt Escape Plan.”

She said if you stay focused and plan out your payments, you can pay off — or at least pay down — your debt while paying zero interest during the introductory period.

But the strategy comes with cautions.

“While a balance transfer seems like a dream scenario, if you aren’t careful, it can turn into a nightmare,” Harzog said. “A common problem for some folks is that they stop making monthly payments too soon on their old card before the transfer has actually taken place. This can cause a late fee.”

And if you don’t take care of it promptly and it gets reported to the credit bureaus, she said, your credit score can suffer. Make sure to confirm that your balance with your old card is zero before you turn your attention to your new card.

Harzog said another common mistake is using your new balance transfer card for new purchases. This defeats the purpose of your card.

“You can’t pay down your debt while you’re still increasing your balance,” she said. “When you get your new card, make a vow that you won’t use it for purchases.”

Then, figure out how much you need to pay on the balance per month to pay it off. And if there’s a transaction fee, be sure you include that in your calculations.

She offered this example:

Let’s say you get a balance transfer card that offers you a zero percent intro rate for 18 months and has a 3 percent transfer fee. You said you had a $5,000 balance, so when you add in the fee, your new balance will be $5,150 (5,000 x .03 = 150).

The next step is to divide that amount by the number of months in the intro period, which is ($5,150/18 = $286.11). This is the amount you need to pay each month to pay off your credit card debt before the 18-month intro period expires.

“Stick to this plan unless you experience a financial emergency. Otherwise, no exceptions,” Harzog said.

What happens if you don’t pay off your debt?

“Your remaining balance will be subject to the go-to rate for the balance transfer card,” she said. “In your case, try to get a balance transfer card where you can get a go-to rate that will be less than the 12.99 percent APR you have now. At least that way, you’ll still be better off than you were before, and hopefully, have a much smaller total to pay off as well.”

Good luck!

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This story was first posted in April 2015.