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Debt Management

Balance Transfers

If used wisely, credit card balance transfers can save you a lot of money if you consolidate debts from other credit accounts or loans with high interest rates and payments. If used poorly, a credit card balance transfer could cost you even more in interest and fees.

Read the fine print in any balance transfer agreement before you sign. These are the things you need to look for:

1. Is there a time limit on the low interest rate?
   i. Some credit cards offer the same low interest rate on the transferred balance for the life of the balance.
   ii. Other cards will offer a low rate for a set period of time and then revert to the credit card's regular interest rate if the transferred balance is not paid off in full before the interest rate change.
   iii. If you've transferred a large balance and don't pay it off in time, you could wind up paying even larger interest payments than before you transferred the balance.
2. Will you be charged a fee for a balance transfer? The fee could either be a flat sum or percentage of the debt you plan to consolidate.
3. Shop around - you may be able to find a credit card that offers free balance transfers.
4. What are the penalties for late or missed payments? Some credit card companies will immediately cancel your low interest rate, raise your rates as high as 20+ percent and charge you a large late fee if your payment is late.
5. Is there a "universal default" clause? If so, your interest rate could increase dramatically if you are late paying any bill and the late payment is reported on your credit report. Pay your cell phone bill late and your credit card interest rate could skyrocket!
6. If you make all your required payments on time you don't have to worry about the penalties for a late or missed payment.
7. Any additional balance or purchases you make with the credit card will be paid for after your low balance transfer is paid off. If you have a $5,000 transfer with a 2.9 percent interest rate and spend an additional $1,000 in purchases on your credit card at a 10 percent interest rate, your balance transfer will be paid off first. Too many additional purchases and you won't be saving as much money in interest as you had hoped.
   
   A credit card balance transfer may or may not work for you, depending on your circumstances and how long it may take you to pay off the transfer. Careful planning and an understanding of the pitfalls will help you make the most of the transfer opportunity.