National nonprofit credit counseling agency Take Charge America helps consumers cut through the confusion of balance transfers and avoid costly missteps
PHOENIX–(BUSINESS WIRE)–When faced with mounting credit card debt, a balance transfer promotion that offers promising low or zero interest may seem like a lifeline. While these cards can be a step in the right direction to overcome financial hardships, they can leave consumers in greater debt if they don’t prioritize paying off the balance.
“Between transfer fees, interest rate changes and the temptation to keep spending, balance transfer cards need to be used cautiously,” said Manuel Salazar, chief executive officer at Take Charge America, a national nonprofit credit counseling and debt management agency. “By treating balance transfer cards as short-term tools for focused repayment, people can use them to reduce debt rather than rack it up.”
Salazar do’s and don’ts for making informed decisions about balance transfers.
- DO Have a Payoff Plan Before the Promotional Period Ends: Balance transfer cards typically offer a low or zero annual percentage rate (APR) for a limited time, usually between six to 12 months. Once this period expires, the APR can jump significantly. Calculate how much you need to pay monthly to eliminate the balance before the promotional rate expires and commit to making the payments.
- DON’T Overlook Balance Transfer Fees: Most balance transfer offers come with a fee, typically 3% to 5% of the transferred balance. That means transferring $5,000 could cost up to $250 upfront. Before committing to a transfer, factor in these fees and compare them to potential savings to determine if the move is financially beneficial.
- DO Keep Your Old Credit Card Open (But Avoid Using It): Closing a credit card after transferring the balance can negatively impact your credit score as you lower your total available credit limit. This means your credit utilization rate – the amount of debt you have compared to your credit limit – will increase, dinging your score. Instead of closing the account, keep it open but avoid racking up new charges. You can even cut the card to avoid temptations to spend.
- DON’T Assume a Balance Transfer Will Solve Your Debt Problems: While balance transfers can help reduce interest payments, they are not a cure-all. If high balances stem from poor financial habits, focus on building a realistic budget and an emergency fund. Without addressing the root cause, you risk accumulating more debt.
For expert guidance on managing debt and building a strong financial future, schedule a free credit counseling session.
About Take Charge America, Inc.
Founded in 1987, Take Charge America, Inc. is a nonprofit agency offering financial education and counseling services including credit counseling, debt management, housing counseling and bankruptcy counseling. It has helped more than 2 million consumers nationwide manage their personal finances and debts. Learn more at takechargeamerica.org or call (888) 822-9193.
Contacts
Claire Chandler
Aker Ink
(480) 599-6880
[email protected]
