Credit card balance transfer pitfalls to be aware of

Report: Credit card balances hits record high A report suggests that credit card balances hits record high in Canada. Personal finance journalist Sean Cooper gives his insight.

Canadian credit card debt recently totalled more than $100 billion for the first time, according to credit monitoring agency Equifax.

With debt mounting, many are wondering whether or not they should be doing a credit card balance transfer. A credit card balance transfer is when you move an outstanding balance from one or more credit cards to another credit card (typically with a lower interest rate).

This is often done as a strategy to save on interest costs and consolidate debts, making it easier to manage and pay off the outstanding balances.

But what are the pitfalls and benefits of doing these credit card balance transfers? Let’s find out here.

PITFALLS OF A CREDIT CARD BALANCE TRANSFER

A balance transfer can be a helpful strategy to consolidate and pay off credit card debt, but it's important to be aware of potential pitfalls before proceeding. In Canada, some common balance transfer pitfalls include:

To avoid these pitfalls, carefully review the terms and conditions of any balance transfer offer, and create a plan to pay off your transferred balance before the promotional period ends. Also, try to avoid making new purchases on the card until the transferred balance is paid in full.

POTENTIAL BENEFITS OF A CREDIT CARD BALANCE TRANSFER

Balance transfers can also offer several benefits if used responsibly and strategically. Some of the main advantages and how it could help your credit situation include the following:

To maximize the benefits of a balance transfer, it's important to have a clear plan for paying off the transferred balance before the promotional interest rate expires. Also, consider avoiding new purchases on the card until the balance is paid off, and make sure to pay your monthly statement on time to avoid late fees and potential interest rate increases.

Remember that a balance transfer can be a useful tool to manage and pay off credit card debt, but it's important to carefully consider the terms and conditions, fees, and interest rates before proceeding.

Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers on his Wealth Awesome website.