Expert Q&A

Is it OK to transfer debt to a credit card that already has a balance?


Consolidating debt to one card might make sense if the rate is low, but watch for fees and putting too much debt on a single card

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Question for the expertDear Credit Care,
Is it a good idea to transfer about $2,000 of debt to a credit card that already has a balance with a good interest rate, or should I just continue with making payments on the balance? — Robert

Answer for the expertDear Robert,
You ask a great question. The answer depends on your overall strategy for handling your debt load and finances in general. So, if you haven’t created a plan, I recommend you start there. Everyone can benefit from a spending plan, otherwise known as (sometimes negatively) a budget.

Without a plan, many people will spend their income until it is gone, often on things they don’t really want or need. If you haven’t tracked your spending for a typical month, it’s a great exercise. Write down, input or scan every purchase you make for a month — including the $1.25 bottle of water from the vending machine. You may be surprised at how you are spending your income. You can find helpful budgeting tools at a number of places around the Web.

Next, decide if you are spending on what you need and want. If you aren’t, make the necessary changes to your spending habits. One habit to start immediately, if you haven’t already, is saving. It is important to pay yourself first to ensure you have enough money put away for unexpected expenses. Store up six months’ living expenses so the next time you have an expensive surprise, you will have cash to use instead of adding to your existing debt.

Paying down your debt should be incorporated into your plan based on your financial goals. For example, if you have discretionary income (money in your budget not already allocated to necessities) of $500 a month, you can decide how best to leverage that money to pay off your debt. Some people like to pay off accounts with small balances first to eliminate the number of bills they pay each month. Others want to save the most they can by first paying off balances with the highest interest rates. There is not a wrong or right way. The most important thing is to commit to paying down your balances and, more importantly, not to add to them!

Should you want to avoid paying a higher interest rate on the $2,000 balance you are considering transferring, I would recommend you consider a few things. First, what fees are involved in the transfer? Second, will the $2,000 added to your existing account push the balance to more than 50 percent of your credit limit? If so, the balance transfer will likely drop your credit score some. This would only need to be taken into consideration if you plan to apply for new credit before paying the balance back down to below 50 percent of your credit limit. Lastly, be sure that if you transfer the $2,000 you will be able to make a payment of more than the minimum amount due each month.

To help with your decision, use credit card calculators — a balance transfer calculator and a pay-off calculator — to determine what your monthly payment would need to be to pay off your debt in a timely fashion if you either transferred your balance or left things as they are now.

Handle your credit with care!

See related:2012 survey of balance transfer cards shows offers getting better

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