5 Steps to take after the Completion of Balance Transfer
Are you tired of struggling to clear the high-interest debt on your credit card? Opting for a facility of balance transfer could be a smart idea. Using balance transfer credit cards, you can enjoy 0% interest for somewhere between 12-18 months. If you are able to make use of that time properly and actually attack your debts, there is a chance, you can emerge from that experience completely without debts, or at least better than how you began.
However, opting for a balance transfer credit card, then transferring the high-interest debts might not be sufficient. In case your efforts stop there- and you are not taking any additional steps for improving your condition- you can easily find yourself in a worse situation by the time the new 0% APR introductory offer ends on your new card.
Your journey towards becoming free of debt has just started when the balance transfer completes. You can follow these steps to walk towards a healthier financial life.
1. Use your New Card Carefully
Making new purchases will simply push you towards debts again
Although it might be tempting to make use of your new credit card for purchases, it is suggested that you resist this urge. Adding new purchases to the balance transfer credit cards can potentially increase your debt further.
Your purchases might not eligible for the 0% APR intro offer
New purchases made will usually be charged with the standard rate of interest on the card, unless the new card also provides a 0% introductory APR duration for purchases.
What happens when you have to charge your new purchases to some credit card after balance transfer?
First of all, take a proper look at the expense and assess if it’s actually important. In case you are already looking forward to racking up the new debt soon after finishing the balance transfer, there might be a huge spending problem at play in this situation.
Payments done using your new card may not entirely go towards new purchases.
The card providers have the option of allocating the minimum payment on your card towards the debt you hold. This implies that your minimum payment might be added to your balance with the 0% introductory APR, not the new charges. This might cause you to rack up the interest charges from the new balance from purchases.
Try to use cash for making payments for the items, so that you will not have to stress about racking up more debt.
As a final resort, it is recommended that you make use of your old card for paying for the new purchases. All the payments done by you go towards your balance; hence, you do not have to stress about where goes the payment goes.
Also, stay careful because if you are carrying a balance, you will have to pay the standard purchase APR. Hence, any charges made by you on the old card must be paid in full before the due date of the statement.
2. Do not close your Previous Credit Card
You may negatively impact your credit score by doing so.
You might be tempted to shut the card you have transferred the debt from; however, closing the old card could do more damage as opposed to good. It is better to keep the old card open because the average credit history length is one of the huge factors of the credit score. The longer the credit history, the better it would be.
Your utilization rate also gets hurt by closing the old card.
This is an even bigger factor in the credit score. The utilization means the total credit limit amount used by you. For instance, in case you spend AED 2,000 in a month across 2 credit cards along with a combined credit limit of AED 8,000, the utilization rate will be 25%.
Although opening new credit card decreases the average credit history length, it does not impact the credit history like closing the old credit card would.
For instance, if your old credit card that has been active for ten years, and you go for a new balance transfer credit card, the average credit history length will be 5 years. However, if you cancel your old card account, it will drop to less than one year, making a huge difference.
3. Choose the Autopay Option and Pay above your Minimum Due Amount
Autopay is a good feature, which can help you avoid missing payments & getting late fees charged. It is also a helpful method for setting up automatic payments, which are greater as opposed to the minimum due amount that can cause a considerable reduction in the debt because paying just the minimum due amount is not enough for getting rid of the debt.
4. Set a 2 months’ Reminder before the Balance Transfer Expires
In case you do not clear your balance before the end of the introduction period, any remaining balance will be charged with the standard rate of interest. Some of the credit cards may also levy all the interest accrued by you and did not pay at the time of the introduction period know as deferred interest. Although this is not common with cards from major companies, it is something to consider if you think you might keep on carrying the balance after the intro period also.
If you are unable to clear your balance at the time of the introduction duration, you still have alternatives for avoiding accruing interest. One of the alternatives is applying for a new balance transfer credit card, such that you can take the benefit of another 0% APR period. Only keep in mind that the balances cannot be transferred between credit cards from the same companies.
Another alternative is to take a personal loan. You can go for consolidation of your credit card debts by opting for a personal loan, which usually has lower rates of interest.
5. Start Budget Planning
You have just finished a balance transfer, so in this case, odds are that you might not have the best skills for financial management. You still have the option to take measures for managing the finances by budget planning. Your budget can be as detailed or as simple as you want it to be.