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.
