Should You Pay Off Credit Cards With a Balance Transfer?

Written by , August 3, 2012

Should You Pay Off Credit Cards With a Balance TransferThe balance transfer deal is a common promotional tool used by credit card companies to acquire new customers. This type of promotion usually allows a new customer to open an account, transfer balances from one or more of their existing credit cards onto the new account – usually up to a certain dollar amount – and pay very low or no fees on that transferred balance for a fixed period of time.

The opportunity to pay off high interest credit card debt at a lower rate can be tempting, but it isn’t necessarily something you should do.

Here is some credit card advice you should consider if you’re thinking about paying off your current credit cards with a balance transfer.

  • Will Your Current Credit Card Companies Negotiate? Before you jump to a new credit card company, call your current company to see if they can lower your interest rate or provide you with some additional grace period. Credit card companies spend a lot of money trying to get new customers – in fact, your current company is probably offering balance transfer deals to other people, trying to bring them in as paying customers. Your current company may very well prefer to lower your fees than lose you as a customer or have you pay off your entire balance, since doing so means they wouldn’t be able to collect ongoing interest charges.
  • What Kind of Deal Can You Get With a New Card? Of course, any consideration of using a balance transfer to pay off your current credit cards must take into consideration the terms you’ll receive from the new credit card company. Obviously a 0% or very low fee for a certain period of time on the balance you transfer to a new account is desirable, but what happens when that promotional period ends? How much will you be charged in interest for new charges you incur? You want to avoid a situation where you save money in the short term, but end up paying more in the long run.
  • Have the Right Mindset. Remember that when you use a balance transfer deal you’re not actually paying off your debt – you’re merely changing terms and buying yourself some time to get your debt levels under control with better finance terms. Make sure you have the right mindset to use that time wisely.
  • Improve Your Spending Behavior. If your credit card balances are the result of poor decisions, then it’s important to use a balance transfer as an opportunity to improve your spending behavior. The balance transfer can buy you a little time and temporarily improve your cash flow situation, so use that time as an opportunity to figure out what you need to do to avoid getting in that situation again.
  • A balance transfer offer from a new credit card company can provide you with some extra time to pay off your debt at a lower interest rate. If you decide to do so, be sure to make the most of that opportunity by improving your debt situation.

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