Inflation is up, interest rates are high and Americans' budgets are getting tighter. The balance transfer offers on credit cards can look like an attractive option for those carrying balances on their cards. On the latest episode of PennyWise, host Nat Cardona is joined by Melissa Lambarena, credit card expert at NerdWallet, shares tips on how to avoid common pitfalls with credit card balance transfers.

Read more on NerdWallet here!

About this program

Nat Cardona is host of PennyWise as well as Lee Enterprise's true-crime podcast Late Edition: Crime Beat Chronicles. Lee Enterprises produces many national, regional and sports podcasts. Learn more here.

Episode transcript

Note: The following transcript was created by Adobe Premiere and may contain misspellings and other inaccuracies as it was generated automatically:

Welcome to PennyWise, a Lee Enterprises podcast. I'm your host Nat Cardona. Times are tough for many American households right now. High interest rates, inflation, tight budgets, debt piling up. For all of these reasons. Balance transfer credit cards may be a helpful option for zapping that debt, but they aren't a cure all. Nerdwallet Credit Card Team senior writer Melissa Lambarena is here with us with some ways to avoid balance transfer credit card mistakes.

Everyone knows that we've got high inflation, high interest rates. People are really hitting up their credit cards because times are tough for a lot of households. And something appealing may be moving your high interest from one credit card to another that has maybe zero APR. You can run into some trouble with some of these things, though. So we want to kind of go over some of the mistakes to avoid.

The first being, this one that I see right here is trying to transfer a balance between cards with the same issuer. Let's just go into that. That's something you probably want to avoid. Yes. You actually even transfer a balance with the same credit card issuer. So this is when it might make sense to open a balance transfer credit card with the new issuer.

Sometimes if you have a different credit card with another issuer, they might send you offers via email or in your email inbox. And this might be helpful in letting you use an existing line of credit to take advantage of a 0% balance transfer offer. Okay, that makes sense. And sometimes you might be missing the balance transfer deadline. Let's get into that.

That might be something that people aren't aware of. When you're trying to transfer a balance, you typically have somewhere between 30 and 120 days to complete that transfer. So if that's your main goal, you want to make sure to act quickly so that you can take advantage of all of the benefits and make sure that you still qualify and are able to complete that transfer.

Sure. And just like anything else, there are hidden fees left and right, and you could miss the fact that you're not taking into account that there is a balance transfer fee, right? Yes. The balance transfer fee is one thing that people sometimes fail to consider and it can be a little bit tricky. You have to compare that costs with the amount of interest that you're already paying and projected to pay over time.

So you want to factor in the transfer fee that might be 3% or 5% of the total amount transferred. And compare if it's going to save you money compared to the amount of interest you'll pay over several months. And Nerdwallet has a calculator that can help you weigh these costs. Okay. Thank you for bringing that up, because that's very important, because a lot of this stuff can be overwhelming for sure.

This is one that I have heard of people encountering in the past, overestimating how much debt that can be transferred. Let's get into that. Yes, a balance transfer limits is very different from your cards credit limit. It's significantly lower where you can only transfer as much as that balance transfer limit permits. So you want to be mindful of that.

This means that you might not get to transfer all of the debt that you were hoping to do, do so, and you might have to come up with another plan, a different plan for that balance that might be leftover that you couldn't transfer. Sure. And when you're planning things out and planning out your finances and budgeting, just kind of with any credit card or any bill you have, you need to and probably want to make more than the minimum payment, especially when it comes to those balance transfers.

Right. Thinking more than the minimum is always a great idea. And that is one common mistake that people might make with a balance transfer because you're not paying interest in that promotional period. But the goal of this card is to make sure that you make a debt in that balance, and by paying more than the minimum, you'll be able to do so.

You want to make sure that you take the total balance and divide it by the number of months within that promotional period and contribute that amount monthly to make sure that it's paid off once that promotion expires. Sure. And speaking of making those smarter financial decisions, so you've moved your hefty balance from one card to the next. You've now got zero IPR, a little bit of breathing room.

Some may be tempted to continue spending on that now freed up original card. Right. And of course, it's got to be something you want to avoid. Yes, you definitely want to avoid this. It will delay your progress. And not only that, if you think about the mindset, right, you're looking and hoping for that balance to decrease over time.

If you see it continue to build up. What is that going to do to your motivation as well? So it can delay your goals in several different ways and you just want to make sure that you keep that card with the goal of paying it down and maybe consider other options. Switching to debit or cash for other expenses.

And that can make a huge difference in final thing here, while balance transfers may be a beautiful tool and very helpful in a time of need and actually a good financial decision when it comes down to it, it's not the overall debt management solution for your finances, right? That's right. A balance transfer credit card can be a great tool for getting out of debt, but it's important to come up with a plan to prevent that debt cycle for repeating.

And this might mean that you do your budget and make any necessary changes or work to an emergency fund or any other changes that might keep debt up. It's important to be able to have your finances in order to make sure that the cycle doesn't keep repeating. Sure, it's that lifestyle change stuff that's welcome to adulthood. You got to kind of pivot where necessary.

Okay, Melissa, anything else you want to add about balance transfer between credit cards, benefits, anything like that? You can use your time to shine. Anything you want to add when considering a balance transfer credit card, make sure that you weigh all the cost. The ideal balance transfer credit card should have no annual be a 0% introductory EPR. That's long enough to help you pay down your debt and a low balance transfer free fee, which is typically 3% or less.

Well, beautiful. Thank you so much.