No one is born with a complete understanding of how personal finance works. But a little financial education can go a long way, and you can learn a lot by talking with experts, especially when they're willing to share the mistakes they made when they first started using a credit card.
Select spoke to Rod Griffin, director of public education and advocacy at Experian, to ask what he wished he knew about using a credit card in his 20s. Like many young adults, he fell into a trap of charging too much on his first credit card and ended up with a balance he couldn't easily pay off.
So Griffin opened a second credit card — this time with a lower APR — and completed a balance transfer, moving over his debt from the first credit card.
Signing up for balance transfer card, like the U.S. Bank Visa® Platinum Card and the Citi Simplicity® Card (see rates and fees), can be a smart way to pay off debt because the temporary 0% APR period, which can last anywhere from six to 21 months, gives consumers time to pay off large balances without incurring interest. (Keep in mind, balance transfer cards usually require at least good or excellent credit.)
Griffin was able to get his debt under control, but in hindsight he realizes he could have easily slipped into credit card default.
Balance transfers can make it cheaper to get out of debt, but without a plan (and a budget) to pay off the original balance, it's far too easy to get into a cycle of what Griffin calls "credit card surfing."
"Credit card surfing" is when you periodically open up a new credit card, rack up too many charges and then transfer the balance to another new credit card with a lower or 0% APR. Doing this repeatedly without paying off the original balances creates a cycle in which you simply transfer a balance from card to card. This might save you interest payments, but over time you'll start to notice too many hard inquiries on your credit report which can negatively impact your credit score. Card issuers pull your information with every new credit card application.
As a general guideline, you should aim to keep hard inquiries to a minimum and apply for new credit products only once every six months or so.
Credit card surfing can also increase your overall debt over time if you don't pay off your balance before the intro period ends. Most expire after 12 to 18 months, after which your APR increases quite a bit, and you'll once again be on the hook for paying interest charges on your debt.
The Citi Double Cash® Card, for instance, is one of our best balance transfer cards. It offers an intro 0% APR period of 18 months of no interest on balance transfers, but after the promotional period the APR jumps up to 19.24% - 29.24% variable. There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5; see rates and fees).
Many balance transfer cards also have limits on how much you can transfer from another card. You might only be able to transfer a portion of your balance, leaving you with multiple cards to keep track of.
"You can play the game successfully, or you can slip on the surf and get buried under the wave," says Griffin.
If you do find yourself wanting to make a balance transfer, make sure to have a clear plan to pay off the debt within the intro period. Bankrate has a balance transfer calculator that can help you figure out the minimum you can pay each month if you want to pay off your entire balance during an introductory 0% APR period. And then automate your payments, so you don't miss the due date each month.
Right now, 0% APR offers are harder to come by amid the ongoing coronavirus pandemic. Card issuers, such as Citi and American Express, are cutting back on balance transfer offers to minimize their own risk.
As lenders tighten requirements, learn how to improve your approval odds. Be prepared to present proof of employment or income so that lenders know you will be able to pay your bills. Know which card issuers are still offering balance transfers and be sure to understand the terms of your balance transfer, such as fees, minimum payments, and length of time.
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