Have a balance transfer financial strategy

Yes, consider fees, rate and score impact, but keep big picture in mind


To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs. See her website for more personal finance tips and free budgeting worksheets.
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Dear To Her Credit,
I have one credit card with a balance of $800 and a credit limit of $5,000. My annual percentage rate was 22.99 percent, but after speaking with the card company, they dropped it to 18.99 percent. I'm still paying about $15-$20 a month in interest. I'm not using the card and just paying the back balance. My credit is OK -- I believe it's 670. My question is should I transfer my balance to a new card that has a 0 percent APR, like the Chase Slate? Would this negatively affect my credit score? -- Alisha


Dear Alisha,
When you only have one credit card, applying for and opening just one more card will not significantly hurt your credit score. At the most, your score may show a slight dip when you apply for a card due to the inquiry by the card issuer checking your credit. However, that dip is temporary.

It's far more important to consider your overall financial strategy when adding a credit card, or making any other financial decision, than it is to worry about a five- or 10-point wobble in your score. The only time you should worry about such a small difference would be if you were about to apply for a mortgage or other loan, and even then it's only likely to affect you if your score is bordering on one of the credit score levels.

In fact, if your credit history is a bit thin -- which it would be if your one credit card is the only item reported -- adding another card to the mix may improve your score over time. Two cards, on which you faithfully make payments or pay off every month, provide you with more good payment history.

Transferring a balance to a low or 0 percent-interest card so you can pay it off more quickly can be a good strategy, especially if you don't pay hefty balance transfer fees. The average balance transfer fee is 3 percent, which is tacked on to the total amount you transfer. With an $800 balance, that would add $24 to your balance.

You have excellent taste in credit cards. A Chase Slate account has a $0 annual fee, and a 0 percent introductory APR for 15 months on both purchases and balance transfers. Unlike many balance transfer cards, it has no balance transfer fee for transfers made in the first 60 days.

Unfortunately, the Chase Slate requires a credit score of approximately 750 or higher. With a credit score of 670, you probably won't qualify for this card, at least not now. Since you are already paying $15-$20 a month in interest, adding a one-time 3 percent balance transfer fee on top of your balance to a 0 percent rate card makes sense -- if you can find a card without any other fees tacked on, such as an annual fee. I suggest you keep looking for a low-fee balance transfer card for people with good credit, meaning FICO scores in the range of 660-749. You use our CardMatch tool to see which cards that you may qualify for.)

Now that you're interested in a credit card designed for people with excellent credit scores, this is a great time to make an extra push to improve your score. Paying your credit card down will improve your credit utilization ratio. Keeping your old card will also help keep your utilization ratio low.

If you want to improve your credit score even more, you may want to work on a good credit mix. Credit mix, or having different types of credit, isn't the biggest factor in your credit score, but it does account for about 10 percent of it. That means having a good credit mix could affect you by 10 to 20 points. To have a better credit mix, you could finance a car, take out an installment loan for an appliance or furniture, or even take out a student loan. Be sure to only borrow money that you would spend anyway. Improving your credit score is little help if you get yourself into burdensome debt doing so.

Keep paying your bills before they're due, of course. One late payment can undo a lot of hard work on improving your credit score.

The strategy of transferring a balance to a 0-percent card only works if you don't use both cards and dig yourself deeper in debt.

You've already demonstrated self-control by not using the first card while you work on paying it off. I'm betting you can stick to your plan. Good luck as you take care of your credit -- and demolish your credit card debt.

See related: 2015 Balance Transfer Survey: Offers more generous, but move fast, 9 things you should know about balance transfers

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Published: November 7, 2014

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