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Tips for Using Balance Transfer Credit Cards

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This article was last updated Mar 07, 2011, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

Especially nowadays, as interest rates seem to be rising faster than they have in years, it is important to know how to make balance transfer credit cards work for you. By strategically using a balance transfer credit card it is possible to shift the burden of high interest rates to less expensive cards, effectively reducing your monthly payments while also slashing your long term debt.

Balance transfer credit cards can put you back in control by consolidating high-interest credit card balances onto one low interest rate card, in other words, and the interest you save can add up to thousands of dollars over time if you have high balances.

Main Balance Transfer Tips:

  • If you are paying high interest rates on credit card balances, for example, then transferring to a 0% interest balance transfer card can save you money instantly.
  • If it also offers you a lower ongoing APR after the promotional period of 0% interest expires, you are able to save even more – for as long as you continue to use the new card.
  • This kind of maneuver is especially helpful if your monthly payments are so great that you are having trouble making them or if you are unable to pay off your entire credit card balance off each month.

Let's say, for example, that you are carrying a $5,000 balance with an APR of 20 percent.

If you make only the minimum payments then your annual interest payments are costing you somewhere around $350 a year – or about $30 a month.? Meanwhile by making only your minimum payment you are incurring more interest but you're almost nothing to lower your debt. The interest also compounds.? That means that you are also paying interest on your accrued interest. So if you owe $5,000 you wind up paying interest not just on the original $5,000 that you charged to your credit card, in other words, but also on any accumulated interest being charged to your account.

Within a very short time your debt can mushroom out of control. To pay off $5,000 by making minimum monthly payments it will take more than 15 years to pay off your balance.? Meanwhile you will pay more than $5,000 just in interest. So your original $5,000 purchase of a bedroom set, motorcycle, summer vacation, or new wardrobe winds up costing you more than $10,000.

The math necessary to precisely tabulate your interest, compounded interest, and total debt can get really complicated in a hurry. But if you want to get a really clear and more accurate picture of exactly what your credit card balances are costing you then just go to our Credit Card Calculators. These will automatically do the arithmetic for you, and there is even a special calculator devoted to balance transfers.

The two biggest considerations when choosing a new credit card for a balance transfer are to determine how long your introductory rate will last, and how much you are charged in flat fees to do the initial transfer.

  1. The typical fee amount for balance transfers is 4% of the transferred amount. So, for example, if you are transferring $2,500 from another credit card, you would be charged $100 just to transfer the balance.
  2. If you are transferring $10,000, the amount would be $400. No bank that we are aware of offers a maximum or ceiling on balance transfer fees, but most require a minimum balance transfer fee of at least $5 and maybe a lot more.
  3. Regarding intro rates, if you have really good credit a card company may offer you a low rate of between 0% and 4% for as long as 12 months. Some even offer intro rates in the 2-3% range for 18 months.
  4. But most offers expire about six months, so be sure to read the small print and find out how long your lasts. That way you can try to pay off your balance while your cheap rate is still in effect – which is the best possible way to manage your debt and take full advantage of balance transfer cards.
  5. Do that and they work for you, not against you, and become a really savvy credit card debt management tool.

You'll need a good to excellent credit score to qualify for a 0% credit card balance transfer, but the savings can be substantial.

But cardholders should also be careful not to fall into balance transfer credit card traps. If you are not careful to understand all of the terms and conditions of the card, for example, you might wind up paying out more than you actually save. It is also possible to use up so much of your credit limit that you undermine your credit score, which can result in higher interest rates on all of your cards and loans.

Perhaps the worst but most common pitfall for consumers is that they start to rely too heavily on balance transfers as a way to temporarily postpone the inevitable task of paying off their credit card balances. They get into the habit of simply switching their debt back and forth between cards, and by doing this they incur lots of extras charges without really accomplishing any sustainable debt reduction. Use our free credit card calculators to crunch the numbers, and then make a plan to reduce your debt in a timely and responsible manner. You'll feel better, have more money in your pocket, and will wind up with a credit card that offers competitively low interest rates.

To learn more about what you should consider prior to doing a balance transfer, check out this information from PBS: Eight things a credit card user should know.

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