You’ve seen those offers in the mail or online: “0% Interest on Credit Card Balance Transfers!”
Sounds like a good deal, right? Hopefully yes, but sometimes not so much.
Here are seven mistakes people make when making a credit card balance transfer. Pay special attention to the last two.
Mistake #1: Not paying attention to the credit card transfer fee
While the 0% interest is the real deal, there is often a cost involved in activating the credit card balance transfer. The cost can be as high as 5%, which means if you transfer $1,000, you pay $50. If you found a bank that charged 3%, it would only cost you $30.
Mistake #2: Transferring the wrong kind of balances
Some credit cards allow you to transfer not only other credit card balances but also car loans, student loans, home equity loans — even small business loans. While it might be tempting to transfer these debts to a lower 0% rate, that is a bad move if the payment term of the original debt is longer than the 0% rate period. This is because there is no guarantee you will be able to get another 0% rate when yours expires. If that happens, you just switched a lower interest rate debt to a higher normal credit card rate.
Mistake #3: Closing your old card right away
If you are done with the old credit card, by all means stop using it. However, unless it has an annual fee, don’t close the account yet. Part of your credit score is calculated by total outstanding credit card debt divided by your total credit card limit. When you close an account, your total available credit goes down while your balance doesn’t – and this results in lowering your credit score. Also, older credit gives you a higher score than newer credit, so once again, if an old card is removed from your credit report, it could also lower your total score.
Mistake #4: Expecting a 0% rate on your new purchases
A balance transfer offer doesn’t apply to new purchases. They may apply payments to the balance transfer amount while charging interest on new purchases.
Mistake #5: Forgetting to make a credit card payment
The fine print of the 0% interest offer may say that if you miss a payment the 0% interest rate is forfeited and you start paying the normal credit card interest rate.
Mistake #6: Not paying the minimum payment on your old credit card
Be aware that balance transfers can take up to 60 days to process. You will often be required to continue to make minimum payments on your old card during this time.
Mistake #7: Spending the interest you save on more spending
A 0% credit card is a great way to help you pay down your debts. All of the payments you make each month are going to make your debt shrink faster. But if you only make the minimum payment in order to spend beyond your means, you may find new debt is replacing the old debt you are trying to pay off.
Done right, a credit card balance transfer could save you hundreds of dollars in credit card interest and help you have less debt by the time it expires. A credit card balance transfer done wrong will find any savings was offset by other spending.
For credit cards that offer zero percent annual percentage rate (APR) balance transfers — in addition to amazing rates, cash back and rewards — check out Zions Bank’s Clarity, Vivid Rewards and Agility Cash Visa® Credit Cards or compare Zions Bank credit cards and select the one that best meets your needs.
Article originally published on May 2, 2023, and refreshed on February 2, 2024.
1. Credit cards subject to credit approval. Terms, conditions and restrictions apply. See banker for details.