Transferring a balance from a high-interest credit card to a low- or no-interest one can be a great way to save hundreds of dollars and pay off your debt faster.
You really have to know what you’re doing, though. If you don’t, you could end up owing more than you did before the transfer.
The fine print of any balance transfer offer will reveal a number of mistakes you could make.
These details aren’t always easy to understand, so we’ve asked several credit experts to weigh in on the pitfalls of transfers.
Mistake 1. You fail to do the payment math.
Part of what you'll pay comes in the form of a transfer fee, which usually ranges from 3% to 5% of the amount transferred, says Ken Lin, CEO and founder of consumer credit advocate CreditKarma.com.
A transfer fee of 3% would mean paying $30 for every $1,000 transferred. These fees initially put you further in debt, but they can be worth paying if the interest rate on the new card is low enough.
This interest rate needs to be sufficiently lower than your current annual percentage rate, after factoring in the fee, to make the transfer worth your trouble.
In most cases, the math adds up.
Transfer a $5,000 balance from a card where you’re paying 17% interest to a card where you’ll pay 0% interest, and you’ll save hundreds of dollars in interest.
But it’s not that simple.
You need to know how long the introductory period lasts, how long it might take you to pay off your balance and what the interest rate will be when the introductory period ends.
If the introductory period is one year and you can pay off the $5,000 in that time, you’ll come out ahead.
If you have a shorter introductory period or a longer payoff period, you might not.
Our balance transfer calculator can help you determine how long it will take to pay off your debt.
Mistake 2. You make a late payment.
"Many banks will instantly remove your balance transfer rate if you are even one day late on your payment," Lin says. "As a matter of fact, many banks incorporate this behavior into their pricing. Consumers need to be extra diligent with these payments."
You also need to pay careful attention to your old card while the card issuer processes your transfer request. If the transfer takes longer than you think, you could miss a payment on the old card and incur a late fee plus more interest.
Mistake 3. You fall further into debt.
You'll need to calculate whether you can pay off the balance during the introductory period, because the new card’s regular rate might be higher than what you were paying on the old card.
But cards that have a 0% introductory rate on transfers can get you in trouble in another way as well.
Howard Dvorkin, founder of the credit counseling firm ConsolidatedCredit.org, says borrowers can be caught off guard when they learn that new purchases carry the card’s regular interest rate.
If the introductory rate is also 0% on purchases, consumers might be tempted to spend more and pay later, he says.
Mistake 4. You pick the wrong card.
Sometimes the transfer you want to do won’t be allowed.
“Many large credit card companies own multiple credit cards under various names," says Kimberly Foss, founder of Empyrion Wealth Management in Roseville, Calif. "And if the card you want to make a balance transfer from is owned by the same company (that owns the card you're seeking to transfer to), you won’t be able to transfer balances in most cases."
The fine print of your credit card agreement and the application should tell you which company owns the cards.
If you do apply to transfer debt from one card to another from the same company, the creditor not only will deny the transfer, it probably won't give you the new card either.
Mistake 5. You open too many cards.
If you make a habit of transferring credit card balances, it can negatively affect your credit score and prevent you from getting new loans, Dvorkin says.
“Lenders realize that consumers are applying to multiple low-interest credit cards because they can’t handle their debt,” he says.
Transferring a balance from a higher interest credit card to a lower interest one should be part of a systematic plan for paying off your debt. Your finances may be in rough shape, but that doesn’t mean you can’t get them organized.
Along with a strong dedication to your debt-reduction plan, being highly organized is the best way to ensure that a transfer works in your favor — not the credit card company’s.