Be Careful Of Balance Transfer Offers
Credit card companies are in the business to make money. Balance transfer offers that seem unbelievable probably are. Lenders do not make offers that they won't benefit financially in some way. In fact, they're hoping that people who accept transfer balance offers won't pay attention to the details. But that's where potential pitfalls are ' in the fine print.
Balance Transfer Fees
There was a time when no-fee balance transfers were commonplace but now have become extremely rare. Most offers today use a percentage of the total amount of the balance transferred as the one-time fee. The typical fee of 3% may not sound like much until you need transfer several thousand dollars.
What you need to watch for is that there is a cap to the fee they will charge, usually between $50 and $125. Without the safety net of a maximum cap, you could pay an excessive amount to make the transfer. Do the math before accepting any offer. If the balance fee equals more than you will pay in interest at your current rate, don't make the transfer.
Variable Interest Rates
Balance transfer offers tease us with low or no-interest rates for the balance that has been transferred, sometimes for the length of the balance or for a specified amount of time. Purchases are not normally part of the no or low-interest deal. So, unless you plan to tuck the card in a drawer and not use it, you need to review the interest rates that will apply when you make a purchase or use a convenience check.
You may be surprised to find that the interest rate on purchases or cash advances is as high as or higher than the credit cards you're already using to make purchases. Balance transfers will only help reign in debt when you stop using the card to make purchases. So make sure you can be disciplined in only using them when absolutely necessary.
Order of Payment Allocation
As we stated earlier, credit card companies are in the business of making money. Another way they do that is in the order that payments are posted to your account. The higher APR balance will be paid LAST. So a balance transfer of $1,000 at 0% APR will be the first paid off; the $500 purchase made on the card at 19% APR will continue to collect interest and be the last to be paid off.
After the Introductory Rate
If the balance transfer rate is an introductory offer, you need to know how much it will increase when the time expires. If you continue to carry a balance you may be socked with a surprisingly high rate. Plan ahead to have the balance paid off before this happens.
Late and Overdraft Fees
Also make sure you don't miss a payment or make payments late. If you do you might find - without warning - that your zero percent no longer applies and you're paying more in interest than you were before.Credit card companies are in the business to make money. Balance transfer offers that seem unbelievable probably are. Lenders do not make offers that they won't benefit financially in some way. In fact, they're hoping that people who accept transfer balance offers won't pay attention to the details. But that's where potential pitfalls are ' in the fine print.
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