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Balance Transfers
 Dec 04, 2008

Transferring balances from one or more credit cards can help you consolidate your credit cards. Many credit card companies offer incentives if you transfer your balance of another credit card. This article will review the pros and cons of balance transfers.

One of the ways you can save money with your credit cards is to do a balance transfer. This is when you take balances from one or more credit cards and move them to a new credit card. Most people do balance transfers as part of a special offer (usually 0% APR for a limited time) for opening a new credit card. Here are the two main reasons that someone might do a balance transfer:

  1. Lower interest rate. Credit cards have different interest rates. The difference between a 0% interest rate and a 15.99%, or higher, interest rate can be huge. The lower introductory APR can help you pay off your credit card balance quicker, since more of the money will go to the principal, rather than to paying the interest. Additionally, most 0% APR balance transfer offers come with purchase benefits. You don't have to pay interest on purchases, either, and that can save money as well.
  2. Debt consolidation. One of the easiest ways to pay of debt is to consolidate it. This means that you put it all in one place so that it is easier to make payments. With a balance transfer on your credit card, you can also get the benefit of a low (maybe even 0%) interest rate. You move other debts onto the credit card, and you pay less in interest overall, and you write fewer checks. A balance transfer on your credit card can make paying off debt much easier.

What to look for when doing a credit card balance transfer

You want to get the best deal when doing a balance transfer on your credit card. This means that you should consider the following features when choosing which credit card to transfer your balances to:

  • Balance transfer fee. Some credit cards have a transfer fee associated with the credit card balance transfer. The fee is either a flat fee, or it is a percentage of the total balance transfer amount. Other credit cards waive the fee if you list balance transfers at the time you apply for the credit card.
  • Initial APR. This is sometimes called the introductory rate. Often, it is 0%. But some credit cards offer balance transfer APRs of between 1.99% and 3.99%. In any case, this low APR is still much better than you are likely paying right now. Check the introductory period. Some credit card balance transfers have an initial period of only six months before the rate resets higher. Other cards offer periods of nine, 12, and 18 months. Try to get the longest introductory period for your APR.
  • Long term APR. After the introductory period is over, your balance transfer will have a new APR. It should be listed in the materials. Find out whether the new APR is fixed or variable. A fixed rate won't go up after the reset. A variable rate will change with the market.

Credit card balance transfer warnings

Even though you have an initial period for the APR, there are circumstances in which your introductory rate can be revoked. Make sure that you take special care to avoid these problems:

  • Late payments. If you are late on a payment, the credit card company can revoke your balance transfer APR, even if the introductory period hasn't ended. Often, the higher APR is even higher than the original APR.
  • Not paying the minimum. Most balance transfer credit cards require that you make minimum payments, even during the introductory period. This means that you if you pay less than the minimum amount, you could end up losing your 0% APR and find yourself with something closer to 20%.
  • Over the balance limit. Credit cards have a limit on how much you can borrow. If you go over that limit, the card company is likely to revoke your special balance transfer APR. Make sure that you keep your account in good standing.

Another thing to watch out for is too many inquiries into your credit. You usually have between four and eight weeks to apply for a balance transfer after the offer comes in. You should not apply for the first offer you receive. Wait a couple of weeks to see if you get a better offer. This is because too many inquiries into your credit for the purpose of trying to get a new credit card can damage your credit score. If you find a better offer, you may be denied because you have already looked into lesser offers.

If you carefully consider the balance transfer offer, you should be able to make a good choice that will save you money in the long run.

Related Article: Credit Cards - fine print >>

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