As the economy gets better, I am beginning to see balance transfer offers in the mail more often. One of the best offers right now is the 0% balance transfer for 18 months from Discover it™. Balance transfer is a tempting option if you’re in debt and want to transfer your balance from higher interest rate credit cards to one with 0% interest for as long as 18 months. Or perhaps, you just want to put off paying for that big purchase for a few months, and be able to do so at your own pace without paying finance charges.
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However, you have to be cautious when dealing with balance transfer offers. If used correctly, they are awesome. Sadly, most people just end up paying the balance transfer fee, accumulate more debt, and when the honeymoon is over, they still have the original debt they transferred. So, the first important thing is to make sure you don’t fall into this trap. If you feel unsure, you’re probably better off not doing the transfer even if the math made sense.
Balance Transfer Fee
If you decide to go for it, then makes sure the fee doesn’t end up costing you more than the interest payments. For example, the Discover it™ card has a balance transfer fee equal to 3% of the amount of each transfer. If the finance charges on your current card are going to add up to more than the transfer fee, then it probably makes sense to transfer.
Adding New Debt to the Old
If you’re going to do a balance transfer, do yourself a big favor and put all of your credit cards away for the duration of the interest free period. The whole idea is to pay down your debt. If you keep making purchases with your credit card, it’s very likely that you’ll put off paying down the transferred balance. Next thing you know, the interest-free period is over, the interest rate get jacked up, and you are back in the same shitty spot all over again…or worse.
Not all balance transfer credit cards are created equal. The offer I mentioned above is very good, but it’s in your best interest to shop around. Here’s a list of 0% balance transfer credit cards you can start off with, but if you can’t find the right card there then keep looking.
Your Credit Score
Before you get too excited about these offers, make sure you read the fine print. More often than not, the advertised offers are only available if you have a high credit score rating — don’t be surprise if the interest-free period is not as long as you thought it would be.
Also keep in mind that opening a new credit card account can temporarily lower your credit score, as will closing your old accounts (it’s usually best to keep them open). This can affect your ability to borrow other money or find affordable insurance premiums. You should thoroughly assess your financial situation before you open a new account.
Pay On Time
Balance transfers often take a few weeks to complete. Remember you will need to pay at least the minimum payments on your current credit cards until the transfers go through. Once you have your new card, you’ll also have to make sure that you also pay on time. If you’re late with your payment even once, you can kiss your interest-free period goodbye and possibly end up in a very tough spot.
Overall, credit card balance transfers could be beneficial — e.g., reduce your monthly minimum payments, help you pay off you debt faster, save you money on finance charges, etc. But before you jump in with both feet, make sure you know what you’re doing.
Andy is a 30-something New Yorker who turned his financial life around. He took charge of his finances, got out of debt, and is now working his way toward financial success. He is the owner and publisher of WorkSaveLive.com.