Are Balance Transfer Offers a Good Idea?

A credit card balance transfer offer can be used to move your credit card debt from a high rate card to one with a lower interest rate, and as a way to consolidate your credit card debts.  Credit card companies offer incentives to do this; they want to be your preferred credit card.  You need to consider the fine print regarding the fees, interest rate and penalties.  Keep in mind that the interest rate can fluctuate on this card after the introductory offer has expired.

If you decide to transfer your balances to another credit card there are many things to consider. You don’t stop paying on the other cards until the transfer is complete and you have a zero balance.  In addition, you shouldn’t cancel any of the cards that you are transferring from.  This can lower your credit scores because you’ll have decreased your available credit.  You should not use these cards again, but put them in a safe place where they won’t be used or stolen.  And, don’t close them!!

Disadvantages – balance transfer

• Have to stop charging on those accounts you consolidated
• No guarantee that the interest rate will not rise after the introductory offer
• There can be a fee for a balance transfer
• The balance transfer can be considered a cash advance which is a higher fee and interest rate than for a new purchase
• The card can have other charges such as annual fee, late fees, and over-the-limit fees
• One late payment on the card can result in a much higher interest rate plus late fees and penalties

Advantages of balance transfer

• One payment
• Lower initial interest rate
• Perhaps even free month for some period of time
• Lower monthly payment

There are a few advantages to a balance transfer.  Be careful about transfers as a strategy simply to consolidating bills; it’s a short term solution. If you pay a bill late one time or more, you might end up paying a higher interest rate than you did before the transfer.  It makes more sense to pay off the bill with the highest interest rates first and go to the next, etc.  There are many online tools to assist you with this strategy.

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.

Categorised in: Credit Cards, Credit Report, Credit Score, Debt, Debt Consolidation, Debt Management, Money & Identity

This post was written by John Ulzheimer