Credit Card Balance Transfer Offers--What's Behind Them and How to Evaluate Them
Tightening bank rules and fine print mean you should know what you're getting when filling out a credit card application for a balance transfer deal.
Are you a credit card rate shifter? Do you find yourself repeatedly transferring your credit card balance to take advantage of low teaser rates? Although it's smart to shop around for lower interest rates, constantly transferring credit card balances has some drawbacks and may become harder to do. Here's what you need to know before you apply for a credit card balance transfer offer.
Credit Is Still Available
Despite all the doom and gloom being reported about the economy, there are folks out there who are still receiving credit offers for low balance transfers, increased credit lines, and other deals. However, changes in legislation designed to protect consumers has resulted in some banks ending 0% credit card transfer offers, decreasing the introductory period, or raising balance transfer fees. For example, Chase's fee is sometimes as high as 5%, according to ABC News. Some companies are even doing away with dollar-amount caps on transfer fees.
Compare Credit Card Offers
So what should you do if you receive credit card offers for balance transfers?
- Carefully compare your current interest rate with what's being offered. Although the teaser rate will get you lower payments for a while (often 6 to 12 months), it's important to understand exactly how the interest rate will increase at the end of the introductory period.
- Read the fine print to learn about any fees associated with the card. Most credit cards charge a fee for transferring a balance, so do the math to make sure it's worth it--particularly if there is no cap on the fee charged for a balance transfer.
- Determine if you will be able to make payments on time each month. Being late with a payment results in not only a late fee, but usually also an automatic increase in the interest to the default rate. In some cases, the default rate could be 25% or higher.
Credit Cards and Money Management
Using balance transfer offers can help you pay off debt if you keep track of the introductory time frame. However, many people forget when they signed up for the deal and don't pay attention to when the interest rate jumps. Also, even though the balance transfer has a low rate, future purchases made on the card may be charged at a higher interest rate.
Ultimately, balance transfer offers won't fix any problems you may have with overspending. Constantly signing up for new credit cards and not handling them responsibly can lead to escalating debt levels and a bad credit rating. Combine any use of a balance transfer offer with a wider assessment of your spending habits and a long-term financial game plan.
Published 01/17/11 (Modified 12/28/15)