How to Use a Balance Transfer Card Wisely

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Understanding Balance Transfer Cards

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding balance transfer cards. For any mortgage service needs, call us at 213-732-3074.

What Is a Balance Transfer Card?

A balance transfer credit card allows you to move the balance of one or more credit cards to another, typically to take advantage of better terms and conditions. These cards are often used to consolidate credit card balances and save money on interest by utilizing a lower annual percentage rate (APR).

Many balance transfer credit cards attract new customers with a temporary 0% intro APR offer. In some cases, this promotional interest rate includes both balance transfers and purchases, allowing you to carry both types of balances interest-free.

However, if you carry a purchase balance on a card that only offers the 0% APR on balance transfers, you may lose the benefit of the promotional rate. Card issuers apply any payments above the minimum payment to the balance with the highest APR, which would be the purchase balance in this scenario.

Downsides of Using a Balance Transfer Card for Purchases

While you may be tempted to use your card for purchases after transferring a balance, this comes with some disadvantages:

• Interest on Purchases: Purchases made on a card with a transferred balance don’t get a grace period from interest, leading to immediate finance charges.
• Difficulty Paying Off Balance Transfer: Card issuers can apply the minimum payment at their discretion, often only reducing the transfer balance by a small amount each month.
• Credit Score Impact: Using more of your available credit for purchases raises your credit utilization ratio, potentially lowering your credit score.

Best Practices for Using a Balance Transfer Card

When used correctly, a balance transfer card can be a smart way to pay off high-interest rate balances. Here are some tips to maximize its benefits:

• Understand Terms and Conditions: Pay close attention to the length of the introductory period and the ongoing APR after the promotional rate expires. Ensure you know whether the 0% APR also applies to purchases.
• Review Balance Transfer Fees: Balance transfer fees can be a percentage of the amount transferred. Compare the fee to the amount of interest you’d pay based on your current APR and monthly payment to ensure it’s worth it.
• Have a Repayment Plan: Calculate your minimum monthly payment by summing the balance and the transfer fee, then dividing that amount by the length of the introductory period.
• Avoid New Purchases: Mixing balances with different interest rates complicates the repayment process. Even purchases on other credit cards reduce the amount you can afford to pay toward the balance transfer.

The Bottom Line

While it’s technically possible to make purchases on a balance transfer card, it’s not advisable if the promotional APR only applies to balance transfers. O1ne Mortgage can help you quickly compare different balance transfer offers to find a credit card that offers a 0% intro APR on both balance transfers and purchases.

Your credit score plays a role in getting approved for the best balance transfer credit cards. For any mortgage service needs, call us at 213-732-3074. We are here to assist you in making the best financial decisions.

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