Choosing the Right Balance Transfer
A common New Year's resolution is to get out of debt–especially credit card debt. Transferring balances to a card with a lower interest rate can make it easier to pay off balances faster. But a low interest rate isn't the only concern, or even the most important one, when evaluating offers. Transfer fees and hidden conditions can actually increase your debt and eliminate the benefit of a lower rate. Read the fine print carefully and ask the following questions to help find the offer that's right for you.
- When does the introductory rate end? Most introductory low-rate offers last between 6 and 12 months. Be sure to ask what your interest rate will be once the promotional rate expires.
- Must you fulfill certain conditions to keep the low rate? Many cards have hidden requirements that you must fulfill to keep the introductory rate. These can include making a certain number of purchases each billing cycle or spending a minimum monthly amount.
- What kinds of fees will the new card have? Additional charges can include annual, balance transfer, and over-the-limit fees. Some promotional offers may charge no annual fee for the first year, but will institute a fee in the subsequent years. Watch out for cards that offer reward packages you don't need, and make sure that by accepting the card you don't automatically enroll in a Credit Protection Plan or some other expensive "benefit" offer.
- Is there a fee for transferring a balance? Some creditors may charge up to 4% of the transferred amount. While some may limit the fee to a certain percentage, others do not. For example, a 4% fee on $2,500 would cost $100. This fee may be charged as soon as the balance is transferred.
The bottom line is this: Don't let the introductory interest rate alone determine the balance transfer offer that's right for you. Fees, terms, and the fine print can all add up to whether or not you're really getting the best deal for your situation. Most importantly, examine your motives. If you're using balance transfers as a way to juggle debt, you may want to consider professional credit counseling.
