7 questions to ask before you transfer a balance
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Dear Opening Credits,
Should I open a new credit card to pay off my husband's debt with a zero percent balance transfer? My credit score is much higher than his. -- Emily
My overriding advice about credit card debt is that if you can avoid paying interest charges, you should do so. Wasting money is such a tragedy! However, there are other factors at play here that complicate the issue.
You must examine the situation as a whole. To determine if the strategy you described is really a sound one, ask yourself the following seven questions:
- Do you need more credit? Before applying for a new balance transfer credit card account, think about the state of your credit history right now. You say it's good, so keep it up! Only take on the new loans and lines of credit that you truly need. An overabundance of cards and the ability to charge vast sums can be an invitation to spend more than you can afford to repay. The resulting debt can ruin a credit score.
- Are there other ways around this? Think about alternative ways to deal with the debt. Options include your husband going through a credit counseling agency's repayment program (they may be able to get the interest rate down significantly so he can pay the debt efficiently), selling items and using the proceeds to pay off the balance and cutting back on expenses so you have more money to go toward the debt. Weigh the pros and cons of each before settling on one.
- What will the balance transfer cost? When a new bank assumes the debt you got into with a different financial institution, they will charge a fee and add the cost back to the debt. The typical fee is 3 percent of the balance, but if that sounds too high, it doesn't hurt to try to negotiate it down. Give the bank a call and see what it can do for you.
- How long will the introductory offer last, and what will the "real" rate be? It won't be worth your while if the zero percent APR only lasts for a few months, and then shoots up to as high or higher than the one on the original card.
- How much will it really save? Once you know the amount the bank will charge you for the transfer and how long the deal will last, figure out how much money it will ultimately save you. Use this calculator to find out. If the amount is negligible, it may not be worth the effort and potential credit damage.
- Will you or he run up the old card again? An oft-neglected consideration when transferring balances is what is going to happen with the old, but now empty card. For many people, it doesn't remain free from fresh purchases for long. If either of you run it up again, you'll have that and the newly repackaged debt to deal with, which will only add to your problems.
- Do you really want to assume someone else's debt? If your husband racked up the bill before you got married and you didn't commingle the account after that, it may not be your legal responsibility to deal with. I'm not implying that you aren't in the marriage together -- a sense of unity is great. But I do like to point that out, just in case you'd rather leave the debt separate.
OK, so now that you've thought about and answered these questions, you should have a pretty clear idea of whether using a balance transfer in this way makes sense. So ... does it?
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