Do you have credit card debt? If you are like most people, chances are you may be juggling balances on more than one credit card.
Many credit card companies offer balance transfers. Perhaps you have received balance transfer checks from your existing credit card company, as well as offers to transfer balances online. Or maybe you have received offers from new credit card companies trying to get your business. The offers sound tempting and they seem like they will save you a lot of money with their low interest rates.
But do you know how these balance transfer offers really work? Read on for some tips on how to decide if that balance transfer offer is a good deal or not.
Understanding How Balance Transfers work
A balance transfer is essentially just transferring the balance of one credit card to another credit card account. The reason many people choose to transfer balances from one card to another is to get a lower interest rate. For example, if you are currently paying 18% interest on one credit card, and you receive an offer to transfer balances to another credit card at a low 7.99% rate, it would seem like a no-brainer to take advantage of such an offer. But are these offers sometimes too good to be true?
Beware of Hidden Fees
Many balance transfer offers charge a one time balance transfer fee (usually 3% of the amount transferred). In addition, some balance transfer offers may have a low starting rate that will increase after a few months. For example, you may be offered a teaser rate of 0% interest for the first 6 months, with the agreement that the rate will go up to 19 % after the introductory period.
Also, if you plan to use the new credit card for purchases, do you know what the interest rate for new purchases is? You may find that it is higher than your old card. This is why it is imperative that you read all of the fine print for any balance transfer offers that you receive. Check the website of the credit card company or call their customer service department if you still have questions about the details of the offer.
Ready to Transfer?
If you have done all of your research and are sure that it is a deal that will save you money in the long run, you may be ready to transfer. You can use a balance transfer check to write a check directly to the credit card company that you want to pay off. You can also usually transfer balances online if you have the account number and the mailing address of the card that you want to pay off. Finally, you can call the customer service departments of your existing credit cards and request information on balance transfers. Most credit card companies will send you checks at your request or allow you to transfer balances right over the phone.
Things to Keep in Mind
While it is tempting to transfer your higher rate cards to lower rate accounts, keep in mind that many people make the mistake of paying off accounts and then racking charges back up on them again over time. You may end up transferring to a lower rate, then charging again on your “open” credit line. If you fall into this trap, you will soon find yourself with two maxed out credit cards!
In addition, be wary of paying off your regular bills with balance transfer checks. If money is tight, it can be tempting to pay that big electric bill with a balance transfer check, but you will only be getting yourself into further debt. It is best to only take advantage of balance transfer offers that will offer you a lower rate than you are currently paying.
Finally, many balance transfers come with the offer to increase your credit line if you transfer a balance. Think about this carefully. Do you really need more available credit? This is just one more thing to consider before you take advantage of any balance transfer offers.
