If you are confused about balance transfer credit cards it’s likely because you’ve heard some of the myths about them.
Believe me, I get it. I’ve been there.
There are so many myths about balance transfer credit cards, it can be hard to distinguish the truth from the fantasy.
Well, good news.
Today we’re covering all the myths of balance transfer credit cards and breaking them down one-by-one. Keep reading to discover the truth so that you can make better financial decisions.
What are balance transfer credit cards?
Balance transfers are a popular way to consolidate your credit card debt to a no-interest or low-interest card during an introductory period, typically 12-24 months. After the introductory period, the interest rate is raised considerably, usually 18% or higher.
Transferring the balances to a no interest credit card is a great way to pay down your debt since more of your payment is going directly towards the interest.
Just make sure you know all the facts first and don’t go by any of the popular myths you may have heard.
11 Myths About Balance Transfer Credit Cards Debunked
Let’s clear up some of the confusion and dispel the myths surrounding balance transfers.
These are the 11 most common myths about balance transfer credit cards along with the real facts so you can better understand the truth.
Myth 1: Balance Transfers Reduce Your Principal
A balance transfer can help you save money in the long run, but it does not reduce the principal amount you owe. Typically, you will pay less in future interest if you transfer your credit card balances to a card with a lower interest rate.
Myth 2: Balance Transfer Credit Cards Are Free
This is not 100% true. In reality, some cards offer free balance transfers, while others charge a transfer fee. This is why it’s important to read the fine print and ask questions beforehand.
Chase Slate offers 0% interest on balance transfers for 15 months and does not charge a transfer fee on balances transferred within the first 90 days.
City Simplicity charges a 3% transfer fee, but they offer an incredible 0% interest for 21 months which is six months longer than Slate. Depending on your individual situation, you may find it’s worth it to pay the transfer fee, as it gives you an additional six months with 0% interest to pay off your balance.
Myth 3: Balance Transfer Credit Cards Are the Key to Getting out of Debt
You’ll need more than just a balance transfer to get out of debt.
On one hand, transfer cards can be a very valuable tool to help you take control of your debt. They include obvious benefits such as the potential to pay considerably less in interest charges and the convenience of combining all your debt accounts into one payment each month.
But the foundation for getting out of debt is responsible spending, consistent payments and adherence to a solid debt reduction plan.
Myth 4: You Don’t Have to Make Payments Until After the Introductory Period
This is simply not true. All credit cards require you to make a minimum payment each month. If you don’t pay, you’ll be assessed penalties in fees and higher interest rates.
Remember, the whole point of balance transfers is to take advantage of lower interest rates so you can pay down the principal balance faster. It is counter-productive to get a balance transfer account and not make payments until the interest rate spikes up.
Try to pay as much as you can afford with the goal of paying the principal in full within the introductory period.
Myth 5: You Don’t Have to Pay Back the Balance as Long as You Keep Transferring the Money
This is a risky game that has the potential to end catastrophically. Banks notice when you are consistently transferring your money and you run the risk your credit card application will be rejected or offered with less than attractive terms.
Then you may be stuck with the balance paying a considerably higher rate than if you had just made your payments during the introductory period.
Myth 6: Closing Old Cards After a Balance Transfer Will Improve Your Credit Score
Closing an account may lower your average account age, and reduce the amount of your available credit. These factors can negatively impact your credit score. Many financial experts advise keeping your old cards open for those reasons.
But if you are concerned about annual fees, or worried you will rack up more debt on the card, then closing the card may be worth it to you.
A third option is to keep the old card open, but remove it from your wallet to control impulse spending. Cut up your old card or store it someplace safe in your home and only use it for emergencies.
Myth 7: Balance Transfers Have No Effect on Your Credit Score
This is a related credit score myth that needs to be dispelled.
A balance transfer can have either a positive or a negative effect on your credit score, depending on how many times you have transferred your balance in the past.
Your score can be negatively impacted if you are simply moving money from card to card without making progress to pay down the debt.
Instead, improve your credit score by keeping your money in your balance transfer account and making consistent payments to pay down your debt.
Myth 8: Anyone Can Qualify for a Balance Transfer Credit Card
Not all people qualify for balance transfers. Potential lenders will run your credit before approving a balance transfer. As with most credit cards, the best interest rates and promotional deals go to people with good or excellent credit.
Myth 9: Balance Transfers Can Only Include Credit Card Balances
While many lenders only allow credit card balances to be transferred, other lenders are more generous. Many will allow you to transfer debts from electronics, appliances and other personal loans. In this case, the credit card company gives you checks which you use to transfer your other debts to your credit card.
Myth 10: Once You Apply, or Once You Are Approved for a Balance Transfer, You Do Not Have to Make Payments on Your Old Credit Card
Transfers can take up to two weeks to complete. Avoid incurring any missed payment fees or late fees by making continued payments on your old card. Keep up with payments until you receive confirmation that the transfer has been approved and the balance transfer has been completed.
If you’re confused at all, here are some simple steps to transfer your credit card balance the smart way.
Myth 11: Balance Transfers Credit Cards Are the Only Way to Transfer High-Interest Credit Cards to a 0% or Low-Interest Account
Balance transfers credit cards are usually the only way to get a 0% account. But you can transfer your high-interest cards to a low-interest personal loan if you have good credit.
One of the main advantages of a personal loan is that you have a defined period of repayment, so you know you’ll be done with the debt in 3 years, 5 years, or whatever term you sign up for.
As with anything financially related, run the numbers to see if a personal loan makes sense for you.
You can find your best options for free at Even Financial and apply to borrow up to $100,000. You type in your information, and their tool will compare interest rates from several lenders and let you know which option is the best for you. Rates start at 3.83% with repayment terms from 24-84 months.
Consider how transferring your balance to a new credit card will affect your finances in the long-term. Run the numbers and evaluate the drawbacks. Only get a balance transfer credit card if you can resist the temptation to rack up more credit card debt.
Once you’ve considered these factors and know the pros and cons of balance transfer credit cards, you can make an informed decision.
Ultimately, if you determine you’ll save money and pay off your credit card faster, then transferring the balance is worth it.
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