Taking Advantage of Balance Transfers
Many people get credit card offers in the mail every day talking about the benefits of transferring to lower rates and taking advantage of zero percent interest for a short period of time. But are these really great deals? If you understand all the details, then yes, you really can come out ahead by taking advantage of a balance transfer. However, you have to be careful, or you could actually end up paying more than you had on your original card.
Before you even consider a balance transfer, there are a few things to consider. Do you routinely use your credit card? If you do, you need to look at two very important things on the new card offer: the monthly interest rate and the zero percent interest period. Is the monthly rate significantly higher than your current card? If so, you may end up paying more in interest in the long run if you continue to charge up new purchases. Can you pay off your balance during the zero percent interest period? If you can’t, again you’ll end up paying more interest on the remaining balance.
However, if you don’t plan on using your new credit card for future purchases or if you can easily pay off the balance without accruing interest, the balance transfer is probably a good deal. Once you’ve determined this, there are a few other pieces of information you need to take a look at. What is the balance on the new card? If you’ve got a large amount charged up on your current credit card (or cards—you can transfer balances from multiple cards to one new card), then you may not be able to transfer the entire balance over.
If this is the case, decide how much you want to try to pay off during the zero percent interest period. Some people will transfer the maximum, but if the new card has a high interest rate and you can’t pay all of that off, you’ll end up paying more in interest on the remaining balance. If you’re simply trying to pay off your balance without paying a lot in interest, only transfer what you think you can pay off during the zero percent interest period.
One way many people take advantage of balance transfers is by transferring only a small amount to the zero percent credit card with a higher monthly interest rate. They pay off this amount, saving money by not paying interest, but instead of putting new purchases on the new credit card, they continue to use the old card. This way, they get to pay off a portion of their balance at zero percent interest but do not get hit with the new, higher interest rate on new purchases.
