Balancing Balance Transfers
For many credit card holders that feel held hostage by their high interest rates and even higher balances, a balance transfer can seem like a knight on a white horse who has come to the rescue. And sometimes, that’s exactly what they are. You can take your high balance and transfer it to a different credit card with a much lower interest rate. But sometimes, you can get bit by not reading up on the card you are transferring to. You can also do serious harm to your overall credit. Let’s take a closer look at balance transfers and what they can do for you.
It is not hyperbole to say that a majority of Americans are in too much credit card debt. The idea of a low-interest balance transfer is the equivalent to offering free money to a person who desperately needs it. It is no wonder then that many people take the balance transfer jump without looking to see how much water is really in the pool.
The first thing you need to do with every balance transfer is compare the rate that is being offered on the new card with the rate on your current card. One of the biggest tricks is to offer an introductory rate on balance transfers to get you to move your money over, and then they jack up the rate to something close or equal to what you already pay now. While it is true that for those intro months, you would save money, in the bigger picture, you are treading water.
Another popular trick that has come into use in recent years is to offer a completely separate rate for balance transfers and then a separate rate for new purchases. This can be a great deal, depending on what the fine print says. Many cards offer a lifetime fixed rate on transfers that’s very low, but then tie it in with a new purchases rate that is either in the high teens or early 20’s. The only way that a card like this can really work is if you hide it away and never use it for new purchases and just enjoy the low, fixed rate on transfers until you pay it off completely. But most people don’t have that kind of self control, and once Christmas or an emergency rolls around, they get the card out and they are right back to square one.
One more important note on balance transfers, many people simply make a habit out of transferring their credit over and over again every few months when they get a new offer in the mail. Sometimes, people can transfer their balances 5 or even 6 times in one calendar year, constantly taking advantage of new intro rates, but this can do serious harm to your credit. Every time you are awarded a new line of credit, your credit score goes up. But every time you close off a line of credit, even if it was one associated with a high interest rate and bad terms, you get a black mark on your credit report. If you have any plans on buying a home or making any other major purchase where you need a good credit score, using revolving credit isn’t the answer.
So, what to do? The key is patience. Wait for that transfer offer to come along that offers a low, fixed rate for balance transfers and a similar low rate for new purchases. It is as simple as that. Don’t get drawn in by bad offers, and your credit score will thank you