You’ve been approved for a 0% balance transfer card and have just completed the transfer! Congratulations! You’ve taken a very important first step to rid yourself of credit card debt.
However, it’s no time to rest. Although you may save hundreds or even thousands of dollars in interest, the work is not yet over. If you stop now and don’t take other important steps into consideration, you may find yourself in a far worse situation by the time your new credit card’s introductory 0% APR period ends.
Here are those 5 more steps that you must take:
Stop using credit cards
The process of becoming debt free gets much easier if you don’t have to pay any interest on your existing debt. However, things can quickly go out of hand and the task can become impossible if you don’t stop using your credit cards. If you’ve taken a balance transfer card specifically for making inroads into your long pending debt, the only way you can succeed at it is by quitting using your credit cards completely.
Many such cards, such as the Chase Slate card, come with the 0% introductory APR applicable on purchases. Hence, you may be easily tempted to buy more. However, you must keep in mind that the normal APR will become applicable the moment the introductory period is over. And for some cards, this time period may not be very long.
The ideal way to go about the balance transfer process is to transfer all of your existing credit card balance to one single card with a reasonably long introductory APR period. After that is complete, put your cards away in a safe place where you can’t reach them easily. Don’t refrain from cutting them up if the temptation gets too strong. The card issuer can always send you a replacement card once you’re done dealing with your debt.
Plan for when the balance transfer card introductory APR offer ends
In the event that you’re unable to completely get out of your credit card debt by the time your new card’s introductory 0% APR offer is over, you may require a backup or a contingency plan.
If the introductory APR period lasts for 18 months and there’s still a considerable balance on the card to be paid off, you may want to start looking around for a new card with a similar type of offer. Please keep in mind there isn’t a rule that prevents you from transferring a balance from an existing balance transfer card to another one.
Know that you are well within your rights to opt for such a strategy as long as you’ve stopped using your credit cards completely and are working on a realistic plan to overcome your card debt.
Ensure that all old balances have been zeroed out
Whenever you opt for a balance transfer facility from one credit card or loan to a new credit card, you must ensure that all old balances have been zeroed out. It’s not uncommon to notice some small part or rogue interest left over on the old card, which if left non-transferred can quietly incur penalties and late fees while you’re focused on clearing away your new card’s balance.
Although it may seem tempting to close all your old credit card accounts, it may be a wiser move to let them be, as long as you’re not asked to pay an annual fee on them. This is because the FICO scoring model gives weight to the length of your credit history in the calculation of your credit score. Hence, keeping your old credit card accounts open can have a positive impact on your credit score.
Make a reasonable estimate of the amount of debt you can actually pay off
Once you’re able to control your income and expenses, you’ll find it much easier to figure out the extent of debt you can possibly pay off during your new credit card’s 0% APR period. To give you an example, if you owe $10,000 on your credit card and transfer it to the Chase Slate balance transfer card, you’ll get 15 months introductory 0% APR time period to pay off that balance. Additionally, you won’t be charged a balance transfer fee if you make the transfer inside the first 60 days of opening the Chase Slate account.
Now, divide the $10,000 balance into 15 months and you’ll arrive at a $667 monthly payment to become debt free by the end of the introductory offer period. If you won’t be able to pay that much every month, you can pay as much as your pocket allows and bring your balance down as much as possible during these 15 months. Thereafter, you can carry over the remaining balance to another balance transfer credit card.
Create a monthly budget
Your intent to become debt free is extremely important for any balance transfer strategy to bear any results. At the same time, you must also analyze the factors that brought you into this position. Figuring out your habits and understanding what led to the debts can help you strategize for the future.
A majority of people can gain control by creating a budget and writing down each one of their monthly expenses. You will be able to fully understand your budget and make the necessary positive changes when you figure out where your money is being spent.
Pull up your bank statements from the last few months and figure out where your money has been going. It may be tedious, but it will be beneficial. You may even find things that have been erroneously charged or items that are draining your account for no reason. You can plan accordingly once you’ve figured out the problem areas. You’ll have a properly written budget and be on your way to financial stability and management.