6 mistakes a financial planner says too many people make when getting a balance transfer credit card

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• Balance transfer credit cards can be a good tool to pay back debt, but you need to be careful.
• You usually pay a percentage fee of your debt and get a 0% APR for a certain period.
• It's essential that you understand the deal you're getting and that you plan your repayments carefully.

I've had a lot of casual conversations with friends about money, and credit card balances, loans, and debt consolidation come up a lot. During our talks, I've noticed some misconceptions people might have about paying off credit card debt.

To clear things up, I talked to DJ Jack, a financial planner of the fee-only financial planning firm Abundo Wealth . We discussed six blunders people make when considering balance transfer credit cards .

1. Racking up a balance on your old credit card

A popular way to manage debt is to transfer the balance on an existing credit card to a balance transfer credit card with a low or 0% APR . The 0% APR lasts for a short period, usually six to 18 months.

One thing to keep an eye out for is to run up a new balance on your old card. After you've shifted your debt from one card to the other, you start using your old card. Before you know it, you now have twice as much debt. "I've seen this happen a ton, where someone will treat it like free money," says Jack.

2. Being unaware of the balance transfer fees

Many people fail to consider the balance transfer fees when getting a balance transfer card. Balance transfer fees are usually either a flat fee or a percentage of the transfer amount. If a percentage, it's typically between 3% to 5% of what you're moving to the new card. This is tacked on to your balance at the time of transfer.

To make sure it's financially worthwhile, run the numbers to see if it makes sense to transfer the balance . "Check and see what you're going to pay in fees against how much you'll save in interest," says Jack. For example, if you have a low balance or are almost done paying it off, moving your money might not make sense.

Balance Transfer Credit Cards
The best balance transfer credit cards can help you take control of your debt. Popular cards include the Chase Freedom Unlimited and the Wells Fargo Reflect .

3. Not understanding that opening a new card will hurt your credit

When you open a new credit card, the creditor will pull hard on your credit report . Jack explains that it usually dings your score by five to 10 points. However, it can drop your score within six months.

Conversely, when you open a balance transfer credit card, your total credit limit will increase, lowering your credit utilization ratio . This can help your credit score, as the lower your credit usage, the better your score.

4. Not paying attention to the standard APR

While the 0% interest rate is what got you signed up, it's important to know the standard APR on your balance transfer credit card.

In a perfect world, you'd pay off the balance before the standard rate kicks in, but you'll want to be clued in. Should you still have to pay off the card after the promo rate ends, you might pay more interest fees on the remaining balance.

5. Neglecting to shop around for the best offer

People with credit card debt will sometimes jump on the first credit card balance transfer offer they get. Instead, you'll want to shop around for the best rates and offers. Jack explains that the fees and terms can vary from card to card.

"Some creditors might charge you 5% to consolidate your debt, but the length of time will be different," he says. You might trade off a longer period for the low rate for a higher fee, or vice versa.

6. Forgetting to buffer in more expensive months

Jack explains that even if you have 18 months to pay off your balance before the interest-free period ends, you'll want to factor in those months when your spending is higher than the norm.

You'll need to factor in holidays, expenses like birthday gifts, and travel.

"Expenses are usually 'lumpy,'" says Jack. "We don't spend the same amount of money every single month, and it just varies depending on what's going on."

To factor in the months when you're spending more, condense your repayment period to 15 or 16 months. That way, you have a bit of leeway in case you have months where you can only pay back the minimum.