Credit Card Education Guide

The Credit Card Balance Transfer Option

When credit card debt starts to get out of hand and too much of your payment goes towards interest then it may be time to start looking at the balance transfer option that is offered on most credit cards. When executing a balance transfer you are transferring the outstanding debt owed on the old card to a new card. Not only can you make it more manageable by consolidating your credit card debt onto one card, but also choose a credit card with a lower interest rate.

Taking advantage of balance transfer in this way is considered a great way to save money and the first step towards reducing your debt, because a lower interest also means less finance charges. Some credit card issuers even offer no interest for a period of time in order to get a new customer.

Requesting the Balance Transfer

All you need to do is call the credit card company that is going to receive the balance transfer and they will take care of the rest. Have the old card handy when you call, because they are going to ask for the details about your old card. If the balance transfer is associated with applying for a new card you typically have the option to include the details of your request on the credit card application.

To make sure you are getting the maximum benefits of the transfer it is important to read the fine print carefully as there may be some pitfalls that could eliminate some of your savings.

Introductory Offer

Some credit card companies offer a teaser rate, which is often a 0% APR for a period of time. The catch with this kind of deal is that once the promotional period expires you have to pay the standard APR, so making sure the credit card offers a low ongoing interest rate is of the essence when accepting a teaser rate. Any late payments also means that you are no longer qualified for the introductory offers.

Planning ahead could ultimately extend the length of teaser rates, because there is nothing that prevents you from finding a new card with the same type of deal and request a new balance transfer when the old offer expires. There is a common concern that these actions could harm your credit history, but except for the short term implications of another inquiry you may end up with a better credit score in the long run, due to the overall lower credit utilization.

Balance Transfer Fees

While some credit cards do come with no balance transfer fee for transfers the majority of cards charge a fee of around 3% for every balance transfer request. The fee is charged at the time of the transfer and your calculations need to take into account this fee to determine the total savings, but with standard rates above 10% you are still getting a good any time you accept a teaser rate.

Purchases

If you have successfully managed to consolidate all your debt through the use of balance transfers it is tempting to also use this card for purchases, however this is one of the most common mistakes, because for some offers the low interest rate only applies to balance transfers while purchases are subject to the standard rate. This may not sound so bad, but the problem arises when payments are always applied towards the balance with the lowest interest rate. The accumulation of purchases over time combined with an initial balance transfer fee could eliminate any advantage there was in requesting the balance transfer in the first place.

Payment Plan

Keep in mind that a balance transfer is only the first step towards getting out of debt. If you continue to use it for additional purchases and only make minimum payments it will never be paid off and you would have missed a great opportunity to become debt free. You have to be determined to use the balance transfer as a tool to pay off your credit card bills, otherwise the result often ends up being that the situation looks worse once the introductory offer has expired and you are back to the usual high interest rates.