Credit Card Balance Transfers

Credit Card Balance Transfers

Credit card balance transfers involve moving your current debt from one or more credit accounts to a new and, presumably, lower interest rate credit card account. Ideally, the old credit card account(s) are closed once the transfer has been completed, but some people do choose to keep them open for future use.

In the best case scenario, that balance transfer will save you money on interest charges that can take such a big bite out of your monthly payment. That leaves you with more money to apply against your actual debt, rather than on the interest rate you are being charged, and you should see your balance drop at a quicker rate. However, that may not necessarily be the case, depending on the terms of your new account.

Read the Fine Print

Although an offer can look very good at first glance, it's important to read through the entire credit offer to make sure you understand all of the terms and conditions of any account you may transfer your old balance(s) to.

Credit cards that trumpet a super low interest rate can be very enticing when you're currently paying 18 percent or higher interest on your monthly balance, but is the deal as good as it seems? That low interest rate may be just an introductory offer that comes with a time limit of anywhere from three months up to one year. After that introductory period, the annual percentage rate charged may jump up significantly, and your low interest credit card could then cost you as much or even more than the transferred old account. Make sure you understand the eventual interest rate you will be paying for your new account.

Other questions to be answered include:

• Will the low interest rate be applied only to your balance transfer(s) or to your new purchases as well?
• Will you be charged a fee on your balance transfer(s)? If so, this will offset your savings and should be taken into consideration before making the transfer.
• Will you be charged an annual fee on your account? Some companies do assess an annual fee while others do not; so again, this can affect your overall savings, and should be figured into your decision.
• What amount of late fees will be charged in the event your payment isn't received on time? Is there any kind of grace period?
• Will your interest rate automatically jump if you are late with a payment, and how high will the hike be?
• What happens if you go over your credit limit? Will the company allow a little wiggle room, and what kind of fees will you be charged?

As you can see, there is a lot more to be considered when making credit card balance transfers than just the up front interest rate charged. Read through the offer several times to make sure you understand everything, and don't hesitate to call the company making the offer to have any lingering questions answered. You should receive clear answers and friendly service. If you feel answers weren't clear, or possibly even evasive, pass the offer by.

Tips for Transfers

Following these tips should help your transfer process go more smoothly should you decide to forge ahead.

• Make the minimum monthly payment on your old credit card even if you are transferring the balance. You are taking a risk by counting on the balance transfer as your current payment because it make take several weeks to occur, and in the meantime, you could be charged a late fee, suffer a significant bump in the interest rate, and receive a black mark on your credit report. This would be especially detrimental in the event your balance transfer is denied, and you must continue to deal with your current credit card company.
• Follow up with your old credit card company to be absolutely sure the transfer has been completed, even if your new credit card company assures you it has. The only true way to be sure all is in order is to wait until you receive a monthly statement from your old company that shows a zero balance for your account. Only then is it safe to quit sending in that minimum payment.
• Follow the directions on the balance transfer application to the letter, and make sure you don't omit any info or make any errors that would keep your transfer from being approved.

An Alternative to Transfers

If you have been happy with the service from your current credit card company, it may not even be necessary to transfer your balance. If you have been a customer in good standing, your current company will not like the thought of losing your business and may agree to lower your current interest rate if you ask.

Of course, the key is to ask, something that many card holders don't even realize is an option. While no company will volunteer to cut its profit margin, many do have a reduction policy in place for customers savvy enough to inquire. What do you have to lose, except a few interest percentage points? It's definitely worth checking out.

Conclusion

Credit card balance transfers are not a substitute for good money management, but they do have the potential to save you money in the long run if the offer is a truly good one. To best meet your financial objectives, be as informed as possible before making the transfer, and for good measure, close out your old account(s) so you're not tempted to run up more debt that you can handle.