How To Transfer Credit Card Balances

By Pinyo, on April 8, 2009

I have discussed using balance transfer credit cards to help you reduce debt more quickly. As such, I think it’s prudent to go over how to transfer credit card balances so that you can avoid traps and pitfalls. This way you don’t end up paying more fees and finance charges than you should.

Photo by Classyshot via Flickr

Before You Sign Up For A Balance Transfer Credit Card

Before you sign up for any balance transfer offer, there are a few things you should know. Here’s a checklist that you can use:

• Introductory Rate – What is the introductory rate? Not all balance transfer offers are 0% APR.
• Introductory Period — How long does the introductory rate last? Typically this is between 6 to 12 months, but shorter and longer terms do exist.
• Interest Rate – What is the APR once the teaser rate expires? If you can’t pay off your balance by the time the teaser rate expires, this becomes a very important factor because the resulting rate is usually much higher. Some cards will even charge you retroactive finance charge for the entire introductory period. Be careful.
• Annual Fee – Does that card have an annual fee? Of course, no fee is preferred.
• Balance Transfer Fee — Is there any balance transfer fee? Some offer no fee balance transfer, although these are harder to find nowadays. Many credit card companies, such as Discover Card, will charge around 3%. If there’s a fee, check if there’s any cap on the fee. Make sure you understand the full cost of transferring your credit card balances.
• Qualified Transfer — Be sure you understand what transfer qualifies for the introductory rate. Some card issuers will only honor the initial transfer (when you open a new card) and subsequent transfers are treated less favorably.

Read the fine print and ask questions. Otherwise, you could end up paying fees and a much higher interest rate than you expected. Also, keep in mind that you may not qualify for the super-low advertised rate. Don’t be surprised if you ended up with 6.9% APR when the offer said 2.9%.

Illustration from The Skinny On Credit Cards, published with permission. The Skinny On.

Sign Up And Transfer Your Balance

Once you’ve completed your due diligence and is ready to move forward, make sure you fill out your balance transfer credit card application carefully (or balance transfer form in case of an existing card). Incomplete information may delay the transfer or cause unanticipated problem.

While you’re waiting for the application to go through, keep paying your existing credit cards until you the balance transfer is confirmed — this could take several weeks. You don’t want to end up paying late fees due to bad timing. When the new card company confirms the transfer, make sure you cal your existing credit card companies to confirm that your balances were indeed transferred. Write down the name of the person you talked to, the date, the time and what was said.

Where To Find Balance Transfer Offers

Personally, I get several offers a month through mail — i.e., junk mails. However, you can call your current credit card companies to see if they can offer you anything. Otherwise, you may want to review these 0% APR balance transfer offers.

Additional Cautions About Balance Transfer

Additionally, here are some guidelines that you should follow:

• Put away your credit cards. If you are in debt and trying to pay them off, don’t add to the problem.
• Don’t use your balance transfer credit card. Put it away! You will more than likely pay a higher interest rate on new purchases made on these cards. And the bad news is your payments will go toward balance with the lowest interest rate first.
• Always pay on time. You can say good-bye to your introductory rate if you are even a day late. Your rate could easily jump from low single-digit to 20% or more with on late payment.

What are your thoughts on balance transfer? Have you use balance transfer to enhance your debt reduction plan?

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Pinyo is the brain behind Moolanomy personal finance blog and a few other web sites. If you like this article, please subscribe for free daily email updates.

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