Lately we have been receiving a lot of requests for information about using a balance transfer to consolidate credit card debt. One person wanted to know if it is possible to consolidate seven credit cards into one credit card and others want to know what they should do before requesting a balance transfer. There are many items to consideration and below we try to address some of the most important ones. We start with a quick list and then go into detail below.
First, the typical reason people want to do a balance transfer is to receive a lower interest rate on their accounts. If you have accounts that you'd like to have a lower interest rate you can your creditors and ask them to reduce your rate. Sometimes this works, but you may have to ask to speak to a supervisor.
Second, transferring balances can result in balance transfer fees from the new credit card company. When you are looking at an offer, be sure to take those fees into account. They can result in paying more than you think are. The typical balance transfer fee is 3% of the balance being transferred.
Third, what does your credit look like? You can view your credit report for free at www.annualcreditreport.com. To see a credit score, you will have to pay and in this case, I would. You want to know what the creditor will see before your credit score is impacted by their inquiry on your credit report. Balance transfer accounts often require good credit in order to be approved and your debt-to-income ratio needs to be at a good level (15% or less not including your mortgage).
Fourth, know the terms the creditor is offering. How long is the interest rate at zero percent? Will you be able to pay the debts off before the time expires? If you cannot, will interest be retroactively applied to your account back to the date of transfer? If so, that could be very expensive.
To answer the question of how many accounts you can add to a balance transfer, it depends on the creditor, the amount of debt on those cards and the credit limit the new company offers you. I have seen people transfer up to 10 balances to a new card.
You will also need to make a decision on how you will handle those cards you pay off in the transfer. Will you close them, leave them open and make light purchases (balances under 30% of available limit and paid in full each month), etc. Just make sure you know the pros and cons to both strategies.
Finally, understand that you do have other options if your goal is to get out of debt. A debt management plan can help you consolidate debt payments and potentially reduce interest rates charged by your current credit card companies. If you want help looking at all of your options contact one of our counselors today. They can provide you with a free credit report review as well as an outline of your debt repayment options.