How I Used a Balance Transfer to Manage My Debt – Here’s What Happened

A Reddit user got a balance transfer offer that had a 0% APR for a promotional period. He used the balance transfer card to transfer some debt, and a few months later, Discover increased his credit card limit. When he got the new, larger limit, he transferred more money onto his card — and now he’s not sure whether or not the card issuer is going to separately track the two different balances. 

Here’s how the process will work, along with some tips on successfully using a balance transfer card to take control of your credit card debt. 

Here’s how the balance transfer will work for the Reddit poster

As several other posters pointed out, the Reddit user is likely confused about how his balance transfer card works.

With virtually all balance transfer offers like this one, you get a promotional period when you have a 0% rate, such as 10 months, 12 months, or 15 months. In this case, the Redditor had a 10-month offer for 0% APR. This offer usually begins running at the time you open up the card, though.

So, if the Redditor transferred some of his balance two months after opening up the card, then he would not get another 10-month 0% APR, unless this was part of some type of separate second balance transfer offer. There are times when a card you already have open might send you a special 0% promotional offer. However, this usually happens after you have had the card open for a while.

It’s unlikely that this is what happened in this case, since the cardholder was still in the middle of his initial promotional period. It’s far more likely that he would only have the original 10-month offer in place at that time. So, if he was two months in when he transferred the second balance, he would have only eight months left at 0% interest to pay off the second debt he transferred.

The Redditor also wanted to know what happens if you make purchases on a card you did a balance transfer on. Those purchases would be treated separately and charged at the card’s normal APR unless there was also a 0% promotional offer for new purchases. 

How to make balance transfer cards work for you

Balance transfer offers like the one the Redditor is taking advantage of can be a good way to pay off debt by substantially reducing the interest that you pay on your cards. If the Redditor was previously paying anything close to the average interest rate on cards, which the Federal Reserve reported as 21.37%, then changing his rate to 0% means that he’s going to be paying far less in interest. In fact, this is such a good deal that even though most balance transfer cards charge a small fee of 3% to 4% of the transferred amount, they can still be worth doing.

The key to success, though, is to make sure you can pay back the full balance due before the promotional period ends, because otherwise it will jump up to the higher standard rate that your new card probably charges. You could potentially do another balance transfer if that happens, but there’s no guarantee an offer will be available. 

More importantly, you also want to make sure your spending is under control. When you open a new balance transfer card and move your balance over, you free up credit on your other cards. The last thing you want to do is to charge up that balance and end up owing double the amount you did.  

Finally, you should shop around carefully to find the best balance transfer card before you transfer your balance. The Reddit user only got a 10-month promotional period, and there are cards out there that offer you between 12 and 15 months to pay off what you owe. Looking more carefully for a card could have enabled the Redditor to have more time to work on becoming debt-free. It’s worth the effort to search for the right card so you can set yourself up for success with your debt payoff efforts. 

The post How I Used a Balance Transfer to Manage My Debt – Here’s What Happened appeared first on 24/7 Wall St..