Balance Transfer Offers: How to Use Them Wisely
Are you considering transferring your credit card debt to a “teaser rate” card (where a very low interest rate is charged on balance transfers for a specific amount of time)? If so, don’t just do the math—there are many other factors to take into account before shifting your balances.
Negotiate with your current creditor
Why change if you don’t have to? If you have an excellent payment history with your current credit issuer, but aren’t satisfied with the interest rate you are being charged, call the company’s customer service number and speak with a manager or supervisor. Explain that you have been a responsible customer and would like to continue doing business with them. Request an interest rate similar to the offer you are considering. No one wants to lose good business, so they may do what they can to keep you.
Maintaining a relationship with the creditor you already have has its advantages: you don’t have to start again with a new company, nor monitor the date the deal ends. Also, bouncing debt around with too many transfers can negatively impact your credit score, since part of your score is determined by length of credit history and opening new accounts.
Assess your money management style
Do you tend to forget about paying bills and are charged late fees because of it? Are you “too busy” for money management? Then balance transfers may not be your best option, however low the introductory rate.
One late payment during the “teaser rate” period could cancel the special interest rate and make it increase dramatically. In order to get the most out of these transactions, you are going to have to be on top of due dates, pay on time, and know when the deal expires.
Get the best deal
Balance transfers can definitely work to your financial advantage, and great deals do exist. After all, the less interest you are charged, the more of your payment is going toward the principal, allowing you to repay the debt efficiently. Look for balance transfer offers with:
- The lowest introductory interest rate for the longest amount of time
- A low post-introductory interest rate
- No or low annual fee
- No or low balance-transfer fees (which can be up to five percent, equaling $250 on a $5,000 balance)
Understand the terms
As with all contracts, make sure you are completely aware of the terms before you sign on the dotted line. Many offers sound too good to be true—and in some cases they are. Be aware of:
- Offers that only waive fees for "initial balance transfers." Other transfers are treated as cash advances and subject to cash advance fees and immediate interest.
- Misleading offers. Not everyone who gets an offer qualifies for the super low rate.
- How long you must keep the account before being able to transfer again.
- The interest rate you’ll be charged for new purchases, which is often much higher than the balance transfer rate.
Avoid costly delays
Incomplete balance transfer paperwork can cause a serious delay, so make sure you fill in forms carefully. Continue to make the minimum payment on the old card while waiting for the balance transfer to take effect, which may take anywhere from two to four weeks if done by mail. Alternatively, this could also be done over the phone or online which could take a lot less time. Finally, verify complete balance transfers with both your old and new card.
Don’t get into future debt
Transferring balances makes the most sense when you are not going to acquire more debt and will concentrate on repaying what you owe. If you keep the old credit card open and use it to accumulate more debt, the benefit of the reduced interest rate is watered down by a higher overall balance. Cancel or suspend use of the old card (cancelling the card may harm your credit score). And since you will likely be charged a high interest rate for purchases you make with the new card, avoid racking up more debt on it as well.
Can you save money by taking advantage of low interest balance transfer offers? Absolutely. Just beware the potential downsides, know what you are getting into, and use them wisely.
Revised January 2016.