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Transferring a credit card balance to a new card with a 0% APR offer can be a great way to save costly interest fees. Let’s say you’ve found the best balance transfer credit card and you’ve moved the balance from your old card to the new one. Now what?
Here are some considerations you’ll want to keep in mind for both your old plastic and your new balance transfer credit card.
Does a balance transfer close my old account?
No, transferring your balance to a new card doesn’t automatically close the old account.
In fact, your old credit card could still have a balance. Many people trying to pay down credit card debt turn to a balance transfer card, only to find that the credit limit they receive on the 0% card is less than their outstanding debt. If you find yourself in this situation, make sure you continue to make regular payments on your old card to keep it current. (Check out some options for what to do if your credit limit is too low here.)
Should I keep the old card open?
In many circumstances, you’ll want to keep your old account open. That’s because account longevity is an important factor in calculating your credit score. If this card is one of your longest-held accounts, closing it could hurt your score. Plus, having more available credit can help reduce your credit utilization ratio, which can have a positive impact.
If the card no longer suits your needs, inquire with the issuer about a credit card product change to find a better long-term fit.
You can continue to use the old card to make new purchases, but be careful to pay it off in full every month so you don’t continue to rack up high-interest debt.
Do I need to spend on my new card?
Many consumers wonder if they need to use the card once they’ve got it. The answer is no. Many 0% APR offers only applies to balance transfers, not to new purchases. Depending on how your payments are allocated by the card issuer, you might have a hard time paying down the new purchases you’ve made — which are accruing interest.
Card issuers are required to apply any amount over your minimum payment to the portion of your balance with the highest interest rate, but the minimum payment itself can be allocated however the card issuer wants. That means your minimum payment may go toward reducing the interest-free portion of your debt, not new purchases that may carry a high rate. Read the fine print on the credit card offer and see how new purchases are handled — what the interest rates are and whether new payments attack the interest-bearing portion of your balance first.
Some cards offer 0% APR on both balance transfers and purchases. The Wells Fargo Active Cash® Card, for example, offers a 0% intro APR on Purchases for 15 months and 0% intro APR on Balance Transfers 15 months from account opening on qualifying balance transfers, and then the ongoing APR of 19.24%, 24.24%, or 29.24% Variable APR. It also gives new cardholders a bonus: Earn a $200 cash rewards bonus after spending $1,000 in purchases in the first 3 months.
Revisit your spending habits
This is also a good time to evaluate the circumstances that led you got into debt in the first place. If you find it tough to keep your spending in check when you’re using plastic, you’re not the only one. Studies show that people using credit cards spend more than people paying with other methods. If that’s true for you, it might be better to stop using your credit cards for new purchases.
Instead, focus on paying down your debt before the interest holiday on your balance transfer card expires.