Five Balance Transfer Tips
Now that the holidays are over, the bills are coming in for those holiday gifts. That is, only if you charged them instead of paying in cash. You may also receive pre-approved credit card offers, which let you transfer your credit card balances at a reduced interest rate for a certain time frame. For example, the offer could be an interest rate of 0% (or close to it) for 12 to 21 months for the amount transferred.
Five Tips
If you plan to pay your bills off within the timeframe of the offer, you may want to consider it. If you usually carry a balance or pay bills late, a balance transfer is probably not for you.
Here are five tips to keep in mind – interest rates, fees, terms, impact on your credit, and conduct research.
1. Review the interest rate(s) charged by this card. What does the introductory rate include – transfer amount, new purchases and/or cash advances? Some may only include the balance transfer. The others may carry a different rate. What are you charged after the introductory rate is over? Most are at prime plus a margin.
2. Consider the fees charged by the issuer. What fees are charged for the card such as annual fee, balance transfer, over-the-limit fees, late fees and minimum finance charge? If you have to pay additional fees, it is probably not a good deal.
3. Pay attention to the terms or fine print included in the offer, such as the length of time the special rate is offered. If you make a late payment, the interest rate could change to a higher rate immediately.
4. Accepting the credit card could have a negative impact on your credit score. One of the factors that impacts 10 percent of your credit score is applying for new credit.
5. Conduct research on the company for any complaints about them. Also consider other cards and review web sites that compare credit cards.
Should you switch?
Is it worth it to switch? It may be, if you pay the balance in full within the introductory period. You should also read the fine print to determine how the interest rate will be calculated after the introductory offer expires. Will the interest be lower than you have with your present credit card company? It is hard to predict the rate, if it is based on the prime rate plus a margin amount.
If you can’t pay the balance off within the time frame and/or don’t pay your bills on time, this is not for you. The switch will probably not save you money.
If you decide to transfer your balances to a new card, don’t cancel the other card and don’t stop paying on the other card until the transfer has been completed. Canceling the card can lower your credit score, because you have lowered our available credit. This can happen if the new card has a lower credit limit. The addition of another card can increase your score, because your available credit has increased. Don’t use more than 20 percent of your available credit, so your score will not decrease. You should use the old card once every six months to keep it active, but charge very little on it and pay it off in full.
I prefer to pay the balance in full each month, that way I don’t have to be concerned with the interest rate. Everyone can’t do this, but this is a great goal to have.
Credit Scoring Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.
