When you’re first starting out with credit, it can be easy to make mistakes that have long-lasting consequences. Perhaps you miss a payment, max out your credit limit or use your credit card like it’s extra money. But with some discipline, time and the right credit card, it’s possible to recover from past mistakes.
Here’s how you can use credit card balance transfers to help overcome some of those early credit errors.
Pay Down Big Balances More Quickly
If you use your credit card to make all of your daily purchases, your balance can start to add up. Even small costs like a cup of coffee or lunch out can accumulate throughout the month, getting you closer to your credit limit. If you don’t pay off your card in full at the end of the billing cycle, you’ll begin owing interest on the balance, which gets added to your debt every month until you pay it off.
Regularly carrying a large balance can harm your credit because it raises your credit utilization ratio. Your credit utilization ratio represents how much of your available credit is in use. Ideally, you want to use less than 30% of your available credit.
To help manage credit card bills, you can consider a credit card balance transfer offer. With a balance transfer, you can move debt from a high-interest credit card (or multiple cards) to a new card with a lower interest rate. Many balance transfer offers feature a low or 0% promotional annual percentage rate (APR) that may last from several months to several years before going up.
If you can pay off all or most of your balance during the promotional period, you may save on interest and pay your debt down faster.
Streamline Your Payments
When you first started building your credit, you might have signed up for multiple credit cards to take advantage of bonus offers or other benefits. Now, you’re struggling to manage multiple due dates and payments.
Using a balance transfer credit card, you can consolidate your balances into one easy-to-manage payment with a single deadline. Ideally, you want to find a balance transfer card with a credit limit large enough to accommodate all of your balances. If you can’t, you’ll have to prioritize which balances you transfer.
Tackle High Interest
If your credit score has taken a hit from mistakes like missing payments or carrying too much debt, getting a low standard interest rate on a credit card can be difficult. A higher interest rate increases the cost of borrowing and can make it more difficult to pay down your balance.
A low or 0% introductory rate can help you reduce your interest costs for a set period of time, making it easier to pay off your balance.
More Considerations For Balance Transfers
If you’re considering taking advantage of a credit card balance transfer offer, there are a few factors to keep in mind
Understand The Terms And Fees
To choose the right balance transfer credit card offer, you need to understand the costs and conditions first.
- Balance transfer fee: Most issuers charge a balance transfer fee that ranges from 1% to 5% of the transferred amount for promotional offers. (In Quebec, there’s no balance transfer fee.)
- Promotional offer: Many balance transfer offers apply the promotional rate only to transferred balances, not new purchases. To take advantage of the low rate and pay down your balance faster, avoid making new purchases on the card.
- Promotional period: The length of the promotional offer is the amount of time you have a low or 0% APR. The longer the promotional offer, the more time you have to pay down your balance with little to no interest. Once the promotional period is over, you will have to start paying the standard APR.
Keep Or Cancel Old Credit Cards Strategically
When you consolidate credit card balances with a balance transfer, you’ll need to decide whether to cancel your old cards.
Canceling older cards may lower your credit score by reducing the length of your credit history. Lenders like to see a long history of responsible credit use. Canceling cards also reduces your available credit, which can raise your credit utilization ratio.
However, if you keep your old cards open, it’s a good idea to use them as little as possible while you’re paying down your balances. If the temptation to overspend is too great, canceling the cards may ultimately be more helpful for you.
You Don’t Have To Live With Past Credit Mistakes Forever
Whether you’ve accumulated too much debt or taken on too many credit cards, a credit card balance transfer may help you fix some of your early credit card mistakes. With a low or 0% interest rate, you can reduce interest charges and pay down your balance faster. By consolidating multiple credit card bill balances onto one card, you can also simplify the repayment process and take control of your finances. If these are the solutions you’re looking for, transferring your balance to a card with a low or 0% introductory APR might be the right tool for you.
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