The 5 biggest balance transfer mistakes

By Emma Lunn

If you've ever carried a large load of debt on your credit card, you know that the interest charges can quickly dwarf the original debt itself.

A balance transfer card can present an attractive solution -- it lets you shift expensive credit card debt onto a card that has a 0% introductory interest rate. Used correctly, this type of credit card can save you a lot of money.

Yet, used irresponsibly, that 0% card could cost you dearly.  Here, according to the experts, are five of the most common balance transfer mistakes.

1.)  Spending on the card
Balance transfer cards are best used for transferring existing debts and then paying them off. That tempting 0% introductory offer? It applies only to the money transferred. Any additional charges you make while shopping will be charged at the card's standard annual percentage rate (APR). Using the card to withdraw cash from the ATM will attract an even higher interest rate as well as ATM fees.balance-transfer

If you want to pay off your debt before the 0% deal expires, you'll want to set up a direct debit for card payments and then remove the card from your wallet, recommends a spokesperson from consumer advocacy group Which? If you're too tempted to use the card, store it in a drawer -- or cut it into pieces.

2.) Not paying off the debt
When you switch an existing debt to a balance transfer card, it's important to then make a plan to pay off the balance before the 0% deal expires -- otherwise you'll end up paying interest and wind up in the exact situation that inspired the balance transfer in the first place.

So make a note of when the introductory period finishes and work out how much you have to repay each month to have cleared the debt by then. If it's a large debt or you need more time, you can move the debt again to another balance transfer card -- just make sure to plan ahead.

"If you want to switch to a new 0% balance transfer card, make sure you give yourself enough time before your current deal expires," warns the Which? spokesperson.

3.) Ignoring fees and deadlines
Most balance transfer cards charge borrowers a fee for transferring debt to the card, normally 2% to 3% of the transfer amount. It's important to take this into account when working out whether it's worthwhile moving your debt around.

"When you're opting for a balance transfer deal, you should make sure that you're fully aware of any fees and deadlines associated with the cards," says Grant Bather, spokesman for Virgin Money. "For example, making a balance transfer within 60 days [of opening the card] and factoring in balance transfer fees in your overall calculations."

4.) Not shopping around
There are hundreds of credit cards available, so it's important to make sure you pick the right one for your needs. Balance transfer deals will have different lengths -- anything from three months to two years. They'll also come with varying fees, requirements and fine print.

"It is vital that customers spend the time to understand all of the key features on offer from all of the different card providers they are considering for their balance transfer," Bather says. "This will help them to make a balanced judgement best suited to meet their immediate and longer-term financial needs."

5.) Applying for too many cards
When making an application for a balance transfer card, or any other kind of credit card, it's a good idea to limit your applications. No matter how eager you are to move your debt, applying for too many cards can make you appear heavily indebted or desperate to borrow, which will dissuade lenders from doing business with you.

To minimize the number of rejected applications, be realistic, and target your applications toward cards that you're likely to get approved for. If you have a poor track record with debt and no income, for example, you're unlikely to be accepted for a card that requires good credit.

See related: How to cancel a credit card, Debt payoff strategy: Selling your stuff

Published: 15 May 2012