What you Need to Know about Balance Transfers
Balance transfers are often used by credit card holders in an effort to obtain lower interest rates on existing balances.
You have no doubt received an offer from a credit card company enticing you with lower interest rates on transferred balances. Are these offers worth it? Do they actually save you money? What are the catches? Below are several factors to consider.
- Pay attention to the terms of the balance transfer, particularly whether the advertised interest rates applies to just the balance transfer, or to purchases, as well. Some credit card companies offer the promotional interest rate to balance transfers only, and instead charge a much higher interest rate on purchases.
- Pay attention to transaction fees, as they can be significant, particularly when transferring high balances. In fact, some transaction fees can be as high as four percent of the balance transfer rate, or $40 per every $1,000 your transfer.
- Pay attention to the duration of the promotional, or “teaser” balance transfer rate. Most credit card companies offer their balance transfer rates for a set period of time (usually six months to a year). Afterward, the rate can jump significantly, leaving you with high interest payments unless you transfer your balance again to a new card. Before you transfer your credit card balances to a new card, you may want to make sure you are able to pay off the balance during the promotional interest rate time period.
- Pay attention to your monthly payments and make it a priority to pay your bill on time and in full every month. Many credit card companies are now penalizing credit card holders for just one missed or tardy payment. This can result in a termination of your transfer balance interest rate and a jump in your annual percentage rate.
- Pay attention to your old cards when transferring their balances to a new card. To protect your credit, you should pay close attention to your old cards by making the payments until the balance transfer is complete and by verifying that the balances are paid in full. The best rule of thumb is to continue to make payments on your old cards until you receive a bill with a zero balance.
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