Once you transfer your existing credit card debt to your new balance transfer card, your goal is to pay off your balance before the 0% introductory APR period ends. You should avoid taking any actions interfering with this goal - including using your card to make new purchases.
Getting out of debt becomes easier when you are saving money on interest with a balance transfer credit card with a long 0% APR promotional offer. However, using your new card for regular spending is the last thing you want to do. It will add debt instead of eliminating it.
A balance transfer is the process of transferring your high-interest credit card debt from one or more credit cards to another credit card with a 0% introductory APR period, which can range from 12-21 months depending on the card you choose. Because you don't need to pay interest, you can apply more of your payments to the principal balance, enabling you to eliminate your debt quicker. Most issuers charge a fee for transferring your balance to the new card. The fee is added to your balance. The average fee is 3% of transferred amount with some charging as much as 5%.
A balance transfer is a great tool to pay off or consolidate your credit card debt. However, you need to commit yourself to becoming debt-free. Otherwise, a balance transfer isn’t going to work for you.
Why New Purchases on a Balance Transfer Card are Bad
A balance transfer is not magic. You still need to repay the debt and if you don’t pay it back in a timely manner you will end up paying lots of extra money in the form of interest. Using your balance transfer credit card to make purchases can jeopardize your goal of becoming debt-free and it could put you in more debt that you were when you obtained the card in first place. Here are some reasons why you shouldn’t use your balance transfer credit card for purchases:
0% Introductory APR Offer is Only Temporary
A balance transfer card attracts you by offering a 0% APR for a certain period of time. You can avoid interest charges on your credit card debt for a certain amount of time, which will enable you to pay off the debts much faster. However, you only save the time and money if you pay the balance off before the 0% APR period expires. When the zero-interest period ends, the interest rate will go up to the regular rate, wan be as high as 24%. The higher rate will be applied to your remaining balance, erasing any progress you made.
Purchases charged at a higher APR
With most balance transfer cards, the zero-interest offer only applies to balance transfers. Purchases will be charged, the regular higher APR and a grace period will not apply. Credit card issuers have the freedom to allocate your minimum payment towards whatever debt you have, which means your minimum payment may go towards your balance with the 0% intro APR, not your newest charges. You will then rack up interest charges on your new purchase instead.
While some cards do offer an introductory 0% APR on purchases for a set period of time, you are still adding debt. Also, zero-interest purchase periods are usually shorter than the balance transfer period (average is around six months). The second the introductory offer is over, you will be charged the higher interest rate.
Balances Accumulate Quickly
Even if you say you will only use the card once, as you already found out, no matter how diligent you are at monitoring spending, a credit card makes it too easy to accumulate a balance on your card.
Credit Card Issuers Want You to Add Debt
Credit card issuers use 0% APR offers to attract new customers, which is why they generally don't let you transfer balances from another account. They make more money when they acquire a customer from one of their competitors. They count on you wracking up more debt by not paying off your balance by the end of the introductory offer period and by making new purchases. The main reason some balance transfer cards offer rewards and cash back is to tempt you to add to your balance by using the card for purchases.
How to Avoid Purchases on your Balance Transfer Card
Cut up your balance transfer credit card (you can always request a replacement once you pay off your debt) or put it away where you won’t see it every day.
Switch to using cash or a debit card until your debt is paid off.
Get a balance transfer card without rewards or cash back to prevent the promise of rewards tempt you into spending.
If you absolutely need access to credit, use a separate card for the purchase. This will help you keep track of purchases and allow you to pay off your balance transfer on time.
Paying off debt isn't easy but it can be done if you commit yourself to becoming debt-free. A balance transfer card is one of the best tools for helping you get out of debt but only if you use the new balance transfer credit card solely for the balance transfer itself. Adding new purchases will put you further into debt and destroy any progress you made in reducing your debt. The best advice is to put your card away after your balance transfer occurs and don't go looking for it until your debt is paid off.