In today’s world, people are more likely to pull out their VISA or MasterCard than to reach for hard cash, even for small purchases. And with reward and balance transfer credit cards being such a regular part of our day to day existence, it can be hard to remember that it really wasn’t all that long ago when credit cards didn’t exist.

The world’s first credit card was issued in 1951 by Franklin National Bank of New York. The cards were used, much as they are now, to allow trusted borrowers to make small loans without having to stop by their local branch office and fill out scads of paperwork.

Of course, Franklin National had no way of knowing that they had just begun the process of turning the financial world on its ear. They were merely providing a quality service to valued customers, creating more profit for themselves while adding convenience to their account holders’ lives.

It didn’t take long before other banks caught onto the idea, and within 10 years, the three big players in the credit card industry were born:

• BankAmericard
• MasterCharge
• American Express

Of course, only one of the three has kept their name unchanged. While American Express still uses its original moniker, BankAmericard and MasterCharge gave themselves face lifts in the ‘70s, renaming themselves VISA and MasterCard, respectively.

The ‘70s and ‘80s brought a host of innovations to the credit card industry, most notably:

• Reward programs. These programs allow you to earn points when making certain purchases, which in turn reward you by offering free or discounted services or cash back.
• Balance transfer credit cards. These credit cards allow you to transfer balances from other credit cards at low rates of return.

Moving into the ‘90s, debit cards became all the rage, offering many of the services credit card holders enjoyed without actually extending credit. Instead, the money was electronically withdrawn from the card holder’s savings or checking account. Today, the average American has 8 credit cards in their purse or wallet. The United Kingdom has more credit cards than people. We don’t know about you, but we figure that’s a lot of growth for an industry that didn’t even exist 60 years ago.

These days, most of us walk around with a wallet or purse full of balance transfer credit cards, and don’t hesitate to pull out the plastic to pay for anything, regardless of how big or small. But, there are some instances in which it is better to dig down deep into the forgotten corners of your billfold and see if you can’t pull out some of the green stuff. Here are a few examples:

• Purchases under five dollars. Sure, it’s more convenient to use the credit card, but keep in mind that the merchant you are doing business with has to pay a nominal fee every time a customer swipes his card. While most merchants are more than happy to do so, the fee can make small transactions unprofitable for them.
• When leaving a tip. Most of us are aware of the fact that waitresses make most of their money in tips. A typical waitress is paid less than minimum wage by her employer, making up the difference in our tips. Most of us probably also realize that those tips are taxed, just like any other income. What you may not know, though, is that the government has a set percentage which they use to calculate waitresses’ taxes. If you leave a generous tip, doing so in cash allows the waitress to keep a bit more of it, making up for the other customer who skimped her (and for which she still has to pay taxes on the amount the government assumes she collected).
• When you don’t want the transaction traced back to you. Of course, this applies to paying off hit men and other nefarious associates. But, in all seriousness, there are times when you may have legitimate reasons to want to fly under the radar. And when you do, it’s a good idea to pay in cash because it can’t be traced back to you.

Most of the time, of course, it’s fine to use credit cards. And when you do, it’s better to go ahead and use balance transfer credit cards, especially while you still have the low introductory rate. But it’s always a good idea to carry around a little cash for small purchases and tips.

Balance transfer credit cards dangle an incredible offer for those who have managed to pile up a load of credit card debt: switch from your current credit card (and its high interest rate) to our card, and pay no interest on your balance. Your debt is simply transferred from one card to the other. Essentially, you pay off your old credit card with the new one, without needing to pay any interest.

It sounds like a great idea. And the truth is that, for most people, it is a great idea. There are, however, a couple things you should be aware of before you take out balance transfer credit cards:

• The introductory rate only applies to the balance you are transferring. There is generally a different (higher) rate on any charges or cash advances you take with your credit card. You’ll want to be aware of that rate.
• The introductory rate is generally temporary. So, if you really want to avoid paying interest, you need to pay the balance down right away.
• If you only pay the minimum, it will be applied to your transfer balance instead of your charges. Banks do that, frankly, so they can charge you higher interest. Until recently, banks actually applied your entire payment to the charge balance, regardless of how much you paid. Recent legislation fixed that somewhat, but you only benefit if you pay more than the minimum.

By all means, if you have an offer from a balance transfer credit card, you should consider transferring as much of your high interest balance as you can. But before you use the card for any charges, pay that balance down. It’s counterproductive to transfer your balance from other credit cards to get the low introductory rate and then use the card to make charges.

Avoid the trap which many fall into. Don’t just keep transferring balances forward indefinitely, picking out a new balance transfer credit card every time the introductory rate expires. Not only can doing so hurt your credit worthiness, but it also leaves you with credit card balances that take forever to pay off.

There isn’t one of us who wouldn’t like to lower his bills. A whole industry has been formed around balance transfer credit cards and similar credit vehicles which allow us to trade high interest debt for low or no interest credit, in the hopes that we will later use the cards to rack up more debt.

Fortunately, there are some ways that you can legitimately lower your bills, savings yourself a good deal of money and improving your monthly cash flow. Here are the 5 best ways to slash your bills:

1. Refinance your house. This option is increasingly unpopular given the current state of the housing market, but if you have sufficient equity in your home, and relatively good credit, it’s still an excellent way to lower your monthly payments, creating more cash flow for other things.
2. Take out balance transfer credit cards. Admittedly, this will backfire on you if you turn around and charge up a big debt on the new cards, too. But you can make use of introductory rates if you’re smart in the way you go about it. Make sure you know how long the zero or low interest rate is going to last, and pay the credit card off before then. Alternately, you could always roll the remaining balance over to yet another balance transfer credit card.
3. Clip Coupons. Most people have no idea how much you can take off your bottom line on groceries by simply clipping out the coupons from the Sunday newspaper. The trick to saving money with coupons, though, is to only buy things you would have bought anyway. Otherwise, you can deceive yourself into thinking you are saving a bundle on your bottom line when, in reality, you are only adding groceries that you’ll never use to your pantry.
4. Consolidate your debts. Many banks and credit relief agencies offer some form of debt consolidation. Take advantage of it, if you can. Generally speaking, it will lower your monthly bills considerably and allow you to get ahead.
5. Switch to PLPD. As soon as your car is paid off, consider switching to PLPD insurance. In the vast majority of cases, if you put the difference between what you paid for full coverage compared to what you will pay for PLPD in a savings account, you will come out ahead. Of course, you are taking your chances, but this is a gamble that will pay off more often than not.

If you’re like most of us, you went a little crazy when you first started using credit cards. After all, as long as you made a small monthly payment, your credit limit kept going up, up, and up some more. Unfortunately, at some point, we come to the point where we just can’t afford to pay any more than we already are in payments. Then, along come balance transfer credit cards.

Benefits of Balance Transfer Credit Cards

Balance transfer credit cards allow you to consolidate all of your credit card debt onto one card. Best of all, they usually offer a ridiculously low interest rate. It’s not at all unusual for people with good credit to be able to get a credit card with 0% interest on the transferred balance.

Why they Do It

Of course, the credit card company isn’t doing that for you just because they like you. Rather, the reason such attractive rates are offered are that you’ve already shown yourself to be a good credit risk, and the credit card company is banking on the idea that you’re not going to stop using a credit card.

As long as you make payments on your balance, this can be a good thing for you. Unfortunately, though, some people only dig themselves a bigger hole. By not having to pay any interest on the existing balance, many are sucked into charging until they are out to their credit limit or ability to pay again.

Potential Pitfalls

The problem with charging a lot of money on credit cards and then paying the minimum is that you never get rid of the debt. Recent legislation forces credit cards to set minimum payments which pay off at least some of the balance of the credit card, but paying the minimum will still leave you paying interest rates on the same money over and over again.

Don’t get us wrong. We’re not saying you shouldn’t transfer your credit card balances. If you are currently paying interest on your credit card balance and you are offered balance transfer credit cards with a lower interest rate (or better, no interest) you’d be crazy not to do it. What we are saying is that you should use that time when you don’t have to pay interest to whittle down your balance.

Balance transfer credit cards have been popular ever since the first 0% APR offer. Customers quickly realized they could save a lot of money by transferring a balance from a high interest card to the new one with a low teaser rate. Lenders, however, have been finding ways to make these deals more profitable at the expense of consumers. The Credit CARD Act restricts some of the worst abuses, but it may also have an unintended consequence: interest rates on balance transfer credit cards are likely to increase while at the same time, introductory periods are expected to get shorter.

Payment Allocation

One of the biggest rules to impact balance transfer credit cards has to do with a little-known trick credit card issuers have been using to take advantage of unsuspecting customers. Known as negative payment hierarchy, the way the lender applies your payments is not always what you would expect.

For instance, let’s say you have a card with a 0% introductory rate on balance transfers, but a 9.99% APR on purchases. You transfer a $2500 balance and make $500 worth of purchases. Although most people weren’t aware of it, the bank could apply your entire payment to the transaction with the lowest interest rate, in this case the balance transfer. That meant the purchases you made would sit around, racking up interest until the balance transfer was paid in full.

The CARD Act prohibits this kind of scheme, however, which led many industry analysts to speculate that balance transfer credit cards would soon become a thing of the past. Instead, banks are increasing their offers of teaser rates but have recently hiked their balance transfer fees to negate any losses resulting from the ban.

Under the new rules, lenders are allowed to apply your minimum payment (usually 2% of the balance) to the transactions with the lower rate, but anything over the minimum payment must be applied to the higher interest charges. Using our example from above, on a $3000 balance, the minimum payment would be $60. If you paid $100 a month, $60 would go to pay down the balance transfer, and $40 would be applied to the purchases.

Inactivity Fees

In the past, some banks have charged customers inactivity fees for not using their cards. This led to many people canceling their old cards after switching to balance transfer credit cards. Under the new law, however, lenders aren’t allowed to charge inactivity fees. This means that people who take advantage of balance transfer offers can keep their old cards open, even if they’re not using them. This helps their credit rating because they have more available revolving credit.

One caveat to this rule, however: some card issuers are now charging fees when you don’t spend a certain dollar amount over the course of a year. Although it looks and feels very much like an inactivity fee, it skirts around the new rule enough to be legal.

Many people are so fed up with their credit card companies these days, they’re ready to throw out the baby with the bath water. Cutting up your credit cards may be recommended by some experts, but in the real world, you need credit cards to make reservations, buy things online, and to have in case of emergencies. So how do you save money when your creditor is charging you 29.99% interest? Simple, use balance transfer credit cards to take advantage of lower interest rates while you pay off your credit card debt.

Most people are paying credit card interest in the mid to high teens these days. That means they’re paying nearly $200 a year for every $1000 worth of debt. When you consider that most households that have credit cards carry around $15,000 worth of credit card debt, that’s a lot of money – almost $3000 a year. It’s no small wonder so many people are struggling to get ahead.

To dig their way out of debt, people are taking out less credit these days. In particular, they’re not signing up for any additional revolving credit (a.k.a. credit cards). According to recent Federal Reserve Board surveys, they’re also not using their credit cards as much. Instead, they’re paying them off.

We applaud all those consumers who have cut up their credit cards and started working hard on getting out of debt, but we do think they could be overlooking a better option. Two-thirds of people surveyed said they’d change their primary card if they were offered a better deal. Balance transfer credit cards offer consumers that better deal, plus a way to get out of debt faster and pay less interest.

Here’s how it works:

Consumers take advantage of new credit card offers with low, introductory “teaser” rates (APRs). They transfer a balance from a card with high interest to the new card, and pay off the entire amount before the standard rate kicks in.

Tips:

• There are as many bad balance transfer credit cards out there as there are good ones. Make sure you understand the process, and do the math before you open a new account.
• Avoid racking up any more interest by paying off the entire balance before the teaser rate expires.
• Go ahead and cut up your old credit card if you must, but keep the accounts open. This will help your credit, because it gives you a better debt-to-credit ratio.
• Don’t charge purchases on your balance transfer credit cards. Understand how negative payment hierarchy works, and don’t fall into the trap.
• Pay more than the minimum amount due. Better yet, pay as much as you have to each month to zero out your balance before the introductory period ends. If you don’t, you could get hit with retroactive interest charges.

Due to the troubled economy, more and more people are looking for ways to get out of credit card debt for good. The debt load you carry comes at an enormous price: not only will you pay interest on everything that you borrow, but you could be subject to ridiculous fees and hidden charges. As people have discovered during the credit crunch, having a clean credit report doesn’t always save you from paying too much, either. The only real solution is to say goodbye to credit card debt forever.

There are several ways to get rid of your credit card debt. Each comes with its own pros and cons.

• Liquidate your assets to pay off what you owe. This could mean selling off real estate, boats, recreational vehicles, and high-end consumer electronics, or it could be as simple as having a garage sale. Depending on how much you owe, it might be a great idea to do this. If you’re considering selling real estate or other investments, though, be sure to talk with your financial advisor before doing anything this rash.
• Leverage the equity in your home. Since home equity loans have much lower interest rates, it can be financially prudent to convert high interest credit card debt to a low interest installment loan. Be careful with this method, though. If you miss a payment, you could end up losing your house. Always consider how much you can afford, and don’t put your home at risk unless your very certain you can repay the loan.
• Take out a personal loan. If your credit is good, you may qualify for a low interest personal loan that you can use to pay off your credit cards. You won’t have to put up any collateral, and you could save a lot of money on interest. Be aware that your credit score will take an initial hit, though. Keeping your credit card accounts open for a while will help with this.
• Contact a credit counseling service. Be wary of for-profit debt consolidation companies that tell you to stop making monthly payments, as this will hurt your credit score and could cost you dearly in fees. Instead, seek out a not-for-profit credit counseling or debt management service that will help you make one low, monthly payment you can afford.
• Use balance transfer credit cards. These cards offer low introductory rates and will let you transfer a balance from an existing card for a low fee.

When you get those credit cards paid off, you’ll feel great – but remember, keeping one or two cards open will not only help your credit score, it will give you comfort and confidence if an emergency should arise. No matter which method you choose, or even if you use a combination of the ones we’ve listed above, be sure to check with your accountant or financial advisor when making major financial decisions and protect your income and assets from collections, court proceedings, and bankruptcy.

Fees on balance transfer credit cards ticked up slightly in July, mainly owing to an increase in fees by Citi®. The company, which had been charging 3% on balance transfers, increased the fees on most of their credit cards to 4% in July. Despite this minor increase, 0% APR balance transfer credit cards can still offer consumers a considerable value, depending on the length of the introductory term and the amount of the balance transferred.

Although it just raised balance transfer fees a few weeks ago, Citi® recently announced that it is increasing the fee on its Platinum Select® MasterCard® and the Diamond Preferred® Card. In June, the balance transfer fee for both of these cards was just 3%, somewhat lower than most of the other balance transfer credit cards on the market.

In early July, Citi® increased the balance transfer fee on the Citi® Platinum Select® MasterCard® to 4%, bringing it in line with most other banks. The balance transfer fee for the Citi® Diamond Preferred® Card, however, stayed at the low 3% rate.

Starting now, both the Citi® Platinum Select® MasterCard® and Citi® Diamond Preferred® Card will come with higher 5% balance transfer fees. On the Citi® Diamond Preferred® Card, the 5% fee comes with a remarkable 0% APR on balance transfers for 12 months. In addition, the Citi® Platinum Select® MasterCard® comes with a 0% APR offer that lasts an unbelievable 18 months, making it the longest 0% introductory period available today.

With a 5% balance transfer fee, customers will pay $50 on every $1,000 they transfer. For example, on a $5,000 balance transfer, a customer would pay $250 in balance transfer fees. To see how much you could save with a balance transfer credit card, use a balance transfer calculator.

Even though the fees may seem like a lot, the Citi® Platinum Select® MasterCard® still offers new borrowers a considerable value. For example, someone who transfers $5,000 from a card with a 17% interest rate can save more than $1,000 over the course of the 18-month introductory period. That figure represents total savings, after paying the 5% balance transfer fee. In addition, the borrower would continue to save $24 a month compared to their previous credit card.

For the time being, it looks like balance transfer fees of 4-5% will continue to be the norm, especially for customers who are going after the longest introductory periods. Even with these higher fees, however, borrowers stand to save significant amounts of money by taking advantage of current balance transfer credit cards, many of which are more agreeable now than they have been in over two years.

If you’re considering using balance transfer credit cards, you need to understand how they work before you apply. It’s also very important to read the fine print on the credit card application. Only by reviewing the Important Disclosures section and working out the math in advance can you be sure you’ll actually save money on balance transfer credit cards.

Here’s what to look for when you read the fine print:

• Introductory APR on balance transfers – The best balance transfer credit cards offer 0% APR, but if you’re paying 29.99%, you could achieve some savings even with a higher introductory rate.
• Introductory APR on purchases – This may be different from the interest rate on your balance transfer. Be aware that creditors like to apply your payments to the transactions with the lowest interest rate first. If your purchase APR is higher than your balance transfer APR, that could mean any purchases you make will accrue interest until your balance transfer is paid off.
• Standard APR on balance transfers – This is the rate that kicks in after the introductory period has expired. You should try to pay off the entire balance transfer during the introductory period. Otherwise, you could be subject to retroactive interest.
• Standard APR on purchases – Usually this is the same as the standard APR on balance transfers, but read the fine print anyway to be sure.
• Balance Transfer Fee – Most lenders are charging around 4% – 5% of the amount you transfer to the new credit card. If you shop around, though, you could find a better rate.
• Annual Fees, Membership Fees, and Account Setup Fees – These can eat into the savings you would otherwise see when transferring a balance. Just make sure you’re not overlooking any fees, and do the math with a balance transfer calculator.
• Penalty APR – This is the higher interest rate that kicks in after you’ve failed to make a payment, made a late payment, or bounced a check to the credit card company. Make sure you know how much it is, and consider the likelihood that you’ll be paying this higher rate at some point.
• Conditions that trigger the Penalty APR – Some banks will allow you to make one late payment before the penalty APR kicks in while others won’t. Be sure you know how stringent your lender’s rules are on this one, and you’ll have a better idea if it’s worth it.
• Conditions that trigger loss of the Introductory APR – All of your calculations depend on maintaining the teaser rate for the entire introductory period. Make sure you know how to keep it.