Balance Transfer Basics

Saturday, November 12th, 2011

With the APR on most credit cards in the double digits and creeping ever upwards, balance transfer offers boasting low or no interest on transferred balances for an introductory period of time can be incredibly appealing to those of you who are carrying outstanding balances on one or more credit cards. With a 0% interest balance transfer offer, the opportunity is being extended to save money on interest for the duration of the promotional offer, usually between 6 to 12 months. The end result can amount to a rather substantial savings, especially if your revolving balance is on the large side. The most important thing to do if you are considering a balance transfer off is make certain you understand all of the terms and conditions involved.

You are a good candidate to take advantage of a balance transfer offer if:

  • You are committed to paying off your credit card debt.
  • You can control your spending and not rack up debt on other credit cards while you are working to pay your transferred balance down.
  • You are willing and able to make all of you payments on time.
  • You can establish a realistic plan to pay off your entire balance within the promotional time period established by the credit card issuer.
  • Your credit is in good enough shape that you will be approved for a 0% balance transfer card.

Credit card companies are out to profit from consumers. They offer 0% interest on transferred balances because they hope that you will still be carrying a balance on the card when the 0% promotional period expires, after which the APR increases to sometimes astronomical amounts. So it really only makes sense to transfer a balance from one card to another – and pay the balance transfer fee, typically 3% of the entire amount transferred, if you are serious about making a real dent in your credit card debt during the time allotted.

Keep in mind that even if you receive solicitation in the mail by a credit card issuer touting a teaser rate on balance transfers, you may not be eligible. If you have poor credit history you may not qualify for the new card. Keep an eye on whether or not the card charges an annual fee and shop around for one that does not. Likewise, although you ideally do not want to be making many additional purchases while you are attempting to pay off your existing debt, it makes sense to attempt to get a card that has 0% APR not only on transferred balances but on new purchases as well. If you can’t find one, make certain that you do not use that card for any purchases, otherwise any new debt you accumulate will sit accruing interest until the entirety of your transferred balance is paid off.

Finally, after you transfer your balance to another card, make sure that you submit all of your payments on time each billing cycle. Just one late payment can lead to an interest rate hike, and sometimes a penalty fee as well. If you outline a payment schedule to get rid of the balance before the promotional 0% interest rate period expires and stick to it, you will benefit from transferring your balance by saving money.

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