The Lowdown on Credit Card Balance Transfers

Assuming that your credit is good enough, and you can get approved for a new credit card once every six months or year, you might be tempted to take advantage of the new account balance transfer deals that many credit card companies offer. The terms of a balance transfer usually involve a preferential interest rate (sometimes 0%) for a specified period of time for any amounts you transfer to the new card.

It’s true that this type of transfer does have the benefit of saving you on interest charges. However, there are some direct and indirect expenses associated with this approach, so you need to be clear that it’s right for you.

Here is some credit card advice on some of the nuances of doing a credit card balance transfer.

• What’s the Interest Rate After the Preferential Term? Even though it might be your intent to fully pay off the amount you transfer before the period of the preferential interest rate ends, you might not be able to do so. Pay attention to what the interest rate will be on the transferred amount once the offer term ends, and make sure it’s not significantly more than the interest rate you’re paying now.
• Consider the Effect on Your Credit Score. First, opening too many new credit card accounts could have a medium to long-term negative effect on your credit score. Having a lower credit score might cost you more in higher interest charges for big-ticket purchases in the future, like a home or car, and these additional costs could outweigh what you’ll save by doing frequent balance transfers.
• Continue Paying Off Your Debt. Spending your time and energy on constantly rolling over your outstanding balance might be a distraction from what you truly should be focusing on – paying off that credit card balance. Consider a balance transfer only if it helps you pay off your outstanding debt.
• Pay Close Attention to the Terms. Obviously it’s of utmost importance that you pay close attention to all of the terms of any balance transfer you’re considering. What are the interest rate and grace period for any new purchases you make with the card? Remember that most balance transfer offers only provide preferential terms for the balance you transfer, not new purchases.
• Remember Why These Offers Exist. Just to make sure that you have the proper perspective and understanding of the balance transfer process, remember why credit card companies make this type of offer. Low or 0% interest rates are going to be most valuable to individuals who have a large outstanding balance – the more they charge with their credit card, the more valuable the benefit of a lower interest rate will be. A credit card company is going to find this type of customer – one who carries a large balance on the card – to be very desirable. Their hope is that either you won’t pay off the entire balance you’re transferring, or that if you do, you’ll soon be building up a large balance again, and generating interest fees.

Consider all aspects of getting a new credit card in order to do a balance transfer. Open the new account only if it will provide you with an overall financial benefit.