You’ve been approved for and completed a 0% balance transfer deal. Congratulations. You’ve taken the single biggest step to accelerate your escape from credit card debt.
But while you’re set to save hundreds or thousands of dollars in interest charges, a balance transfer doesn't close your old account and there’s still work to do.
Here are five things you need to do once the transfer is complete:
1. Cut up your new card
The biggest fine print trap of a balance transfer is what happens to new purchases you make on your new card.
You’ll get hit with the regular (not 0%) interest rate on them, so you don’t want to use it for any new purchases.
Let’s say you got approved for a $5,000 credit line and transferred $3,000 to your new 0% card.
You might think to keep things simple you can use the new card for your ongoing spending, and since you’re responsible you’ll pay the new spending off each month.
You then put $1,000 of new spending on the card, and then write a check to pay off the $1,000 at the end of the month.
Sounds fine, right? Wrong.
You’ll still be slapped with interest on that $1,000 in spending. Why?
You get hit with interest on the new purchases because you haven’t paid off the entire balance (transfer + new purchases).
So while you’ll still enjoy the 0% rate on the balance you transferred, until you pay that whole balance off any new spending you put on the card will get hit with the full standard interest rate (often 15% or more).
Instead, use a card that has no balance on it for your monthly spending, like the one you just transferred from. Or try a debit card. And cut up your new card to keep you from accidentally making purchases with it.
2. Resist the temptation to close old accounts
The first thing a lot of people do after a balance transfer is call up the bank and close their old account. While it’s satisfying to tell the bank that overcharged you to take a hike, we’re going to say don’t do that.
You want to keep your credit score high so, that if needed, you’ll be eligible for the best offers when your balance transfer expires. And having open credit lines that you’re not using, like the old card you just transferred from, is good for the health of your score.
That’s because it demonstrates you’re not maxing out all your credit.
If you’re worried about spending on the old card, just cut it up but leave the account open. Your old bank already loses because you’re no longer paying them those outrageous interest payments.
3. Set an appointment far ahead
Take the time now to set an alarm on your phone’s calendar for a year or so from now. Ideally, about 2 months before your balance transfer deal expires.
If you got an 18 month 0% deal, set a reminder 16 months from now and label it “BALANCE TRANSFER EXPIRES IN 2 MONTHS – SHOP AROUND.”
By then you may well have paid off your balance, but if you haven’t it will give you ample time to shop around for a new deal.
That way you can line up a new bank to move the balance and keep the 0% honeymoon going for another round.
4. Set up auto-pay
Decide how much you can pay on your new card each month. It might be just the minimum due if you have other debt you’re trying to tackle. Since your new card is at 0% you can focus your payments on that higher rate debt. But regardless of how much you pay, set it up on auto-pay each month. You can do it online or call your bank to set it up.
The worst thing you can do is make late payments and damage your score, which keeps you out of the hunt for new deals, and if they are really late, put you at a much higher penalty interest rate.
With auto-pay there is no reason to miss a payment. You can time it for right after your paycheck normally hits so you know the money will be there and avoid any overdraft charges.
5. Get going with budgeting
You won’t get out of debt for good until you spend less than you earn each month. There are a whole host of free tools that will let you see where your spending goes each month and you’ll find it’s not just to the bills you dread the most.
Mint.com is a good site that will link your credit card and checking accounts in one place.
You can see if there are any charges you don’t recognize, or see if you’re spending too much on things that just don’t matter to you.
Prosper Daily (formerly known as BillGuard) is another site that keeps an eye open for phantom fees or recurring charges you may have forgotten like gym memberships. Small $5 habits add up fast. And getting rid of needless charges can free up more cash to tackle your debt so you won’t have to think about doing a transfer again.
If linking up accounts online makes you uncomfortable, then do it the old fashion way. Pull out your statements and read the charges one by one.
It might be scary at first, but get in the habit and you’ll be a master of cutting things out that just don’t give you much in return.
Barclays Online Savings Account
Synchrony Bank High Yield Savings
Synchrony Bank 12 Month CD
Goldman Sachs Bank USA High-yield 12 Month CD
* All banks listed are a Member FDIC.