Credit Card Balance Transfers

Credit card companies heavily promote balance transfers in their advertising and direct-marketing offers. But make no mistake; even though the companies use phrases like "pay off your other cards" in their promotions, transferring credit card balances is not the same thing as paying off your credit card debts. However, a well-researched balance transfer can reduce your money payments, in some cases substantially. The key is doing your homework. For instance, by switching your $2,500 balance from credit card A that has a high interest rate to credit card B which has a low rate, you could possibly save hundreds of dollars over the course of a year. But other factors, such as late fees and penalty interest rates (if your card has them), must also be considered. If card A is more lenient about late payments than card B (and if you're likely to miss a payment date by a few days), then you might be better off staying put.

Although some card issuers will transfer your balances for free, many others charge you for the privilege. Balance transfer fees can be as high as three percent of the amount being transferred. So by the time you've paid those fees, the money you'll save in interest may indeed be negligible – or totally nonexistent. If you have good credit, it might be wise to consider an alternative to a balance transfer, such negotiating a better interest rate with your current card issuer. Credit card companies prefer to hang on to their good customers, and they'll often lower your rate – or perhaps waive the annual fee or increase your credit limit – if you simply call the customer service center and ask them to.

If you do decide to transfer, be very careful when making the transaction. A balance transfer done by phone or via a balance transfer form can sometimes take as long as several weeks to complete. This can cause you to miss the payment due date on your old card, unless you mailed in a payment separately. One way to avoid this risk is to use a convenience check from the new credit card company to make the transfer. That way, you can mail it in to the old company on time as if it were your regular monthly payment.

Once your balance has been transferred to the lower-interest card, your minimum monthly payment will be less. But don't spend your savings frivolously. Instead, keep paying an amount equal to the monthly minimum that you were making on your old card. In that manner, you'll be able to pay down your debt (which hasn't really changed) more quickly.

Some of the "pre-approved" credit card offers that arrive in the mail could have a very unpleasant 'hook' that you should be especially wary of. The fine print may reveal that if you accept the offer, you must transfer your balance from a card you already have to the new card. And of course, you're likely to find that the new card has an even higher interest rate than your current one.

Using another variation of this tactic, some card issuers buy old debts from other consumer lenders and then offer 'new' credit cards to the people in debt. If those people accept the new cards, they'll find – on the very first statement – a balance that includes their old debt. Again, these terms are usually revealed in the fine print on the back of the new card application form. The telltale language generally includes such phrases as "reaffirmation of existing debt," "automatic transfer of other balances," "authorization to transfer balances," or the like. Again, be very careful, and be sure to read the entire offer.