It can be overwhelming to have multiple credit cards. It can be even worse when those cards all have outstanding balances. Keeping track of it all becomes a full-time job, trying to calculate how to break down payments and minimize the amount of interest you are charged.
In most situations like this, consolidating your credit card debt would be a smart financial move. Credit card consolidation works by moving all of your debt to a balance transfer. Doing something as simple as this can help you save hundreds of dollars by deferring your interest charges.
As with all financial decisions, this is not something you should rush into. Take your time and do the necessary research before you agree to anything. Make sure you understand what the best option for your situation is. Take the following into consideration.
The Transfer Fees
One thing that keeps people away from credit card consolidation are the transfer fees involved. Typically, this fee is between 3% and 5% of the total amount being transferred. This is a one-time charge that is added onto your total outstanding balance after the transfer is completed.
In the long term, however, this fee ends up paying for itself. The money that you can save by deferring interest payments will quickly outweigh any transfer fees. On average, this takes only four to five months of deferred interest payments. Some balance transfer cards will even waive the transfer fee. They usually do this in exchange for a shorter 0% APR period.
Ongoing Interest Rates
Don’t let flashy promotions fool you. A 0% APR period can sound tempting, but what happens after that period ends and you are nowhere near finished paying off your debt? Review all promotions, rates, and terms before you make any final decisions.
There is a difference between a balance transfer card and a low-interest card. A low-interest card is a regular credit card that offers a long-term low APR. Balance transfer cards are specifically for debt consolidation. Some of these cards provide promos on balance transfers for 0% APR or waived transfer fees. They will usually display the ongoing APR next to the promotional offer. A balance transfer card can be a low-interest card, but a low-interest card is not necessarily a balance transfer card.
Do Not Make Any Additional Purchases
Paying off all of your credit card debt should be your top priority, especially if you have consolidated it onto a single card. You do not want to add any more to your debt. All payments you can afford should be designated to your credit card bill.
If you make a purchase while in a promotional 0% APR period, your issuer must apply the cost to your debt. Legally, your issuer is required to apply your payments to the balance that is accruing the highest interest first. This means you will not be paying off the original balance you were targeting. Stick to a solid repayment plan and try not to add any money to your debt.
You Can Not Transfer Balances Between Cards at the Same Bank
This sentiment is hidden away somewhere deep in the terms and conditions of your credit card agreement. Once you decide to consolidate your debt, you cannot transfer your balance within the same bank. Legally, your bank can not transfer any balances from an account or loan to a different account at the same or an affiliate bank. This can limit your options for balance transfer cards, especially if you have existing credit cards open at multiple banks.