Be Careful With Costs of Balance Transfer CardsNovember 26, 2010 - 8:52 am
Applying for a balance transfer credit card can be an ideal way to reduce the amount of credit card finance charges you have to pay and can be a good strategy for paying down credit card debts in a faster period of time. Balance transfer cards are meant to allow you to transfer existing balances on higher interest credit cards to a lower interest card. You can consolidate your credit card debts effectively if you know what you are doing.
There are some serious considerations to make before applying for a balance transfer credit card. Here are the things you should think about:
Do You Have a Plan?
In order for a balance transfer credit card to make sense for you financially, you have to have a plan for paying off the full balance before the promotional period ends. Balance transfer cards typically offer a low interest rate for a set amount of time – like 6-12 months. If you are not able to pay off the full balance by the time the promotional period ends, you risk incurring a much higher interest rate on the card than you can afford to pay on an outstanding balance. This is not a good situation for your credit rating or your monthly financial budget.
Do You Know the Balance Transfer Fees?
In the past you may have been able to find a balance transfer offer that did not require a hefty fee for the transaction. Today’s cards however typically impose a flat-rate fee of up to $75 or more for the transferring of balances. Some cards will charge a fee based on a percentage of the total amount being transferred over to the card. Depending on the rate and how much you transfer, you might have to pay hundred of dollars in fees just for one transaction. Some companies will cap the amount of fees that can be charged so check out the fine print on several cards.
What the Deal With Interest?
For those with great credit, you may be able to find a 0% balance transfer credit card, meaning you pay no finance charges for the length of the promotional period. This can be very advantageous to reducing your credit card balances. However, you should not be focused only on the percentage of interest you are getting during the incentive period, you also need to be clear on what the interest rate will be after the promo time has ended. It may be great to get a no or low interest rate but when your card goes up to a 20% interest rate or more, you will be paying some serious cash.
Have You Compared Cards?
All cards are trying to outdo each other so you should check around and do some comparison shopping before applying for just any balance transfer card offer. There are many card providers that do offer incentives worth your while but you often have to sift through a lot of fine print to figure out which one to get.
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- Seven Things You Should Know About Balance Transfer Credit Cards
- Credit Card Transfers Will Save You Money If You're Careful