Do A Balance Transfer the RIGHT Way!
There are very few things in life that so many people do, and so many people end up doing badly as credit card balance transfers. They fall for the sales pitches without reading the fine print. Well, those days are over. Here is a step by step guide to transferring balances the right way!
Step one: The Introductory rate: how long does it REALLY last for?
This is the great big hook in all balance transfer offers. The intro rate is fantastic, it can even be amazing, but in almost all cases it is a temporary rate that reverts to a much higher rate in 3, 6 or 9 months. How can you tell? The truth is in the disclosure statement. A disclosure statement is the single most important part of a balance transfer offer. This is the little set of boxes usually located on the back of the actual form you have to fill out to get the credit card. It tells you what the intro rate is and how long it lasts for. There are a handful of wonderful credit card offers out there that really do offer a fixed rate on balance transfers that is in the single digits, but they usually come with high annual fees or incredibly high rates on new purchases. There is almost always a catch.
Step two: Even if you have a low intro rate that you know is going to expire in six months, sometimes, that isn’t enough for your credit card.
Some card companies now require that you do certain things to keep that intro rate from ending much sooner than they said it would. These conditions could be using your card once per month or using it to charge up to $100 per month. For most people, this condition isn’t that big of a deal, but if you happened to get a great card that has a low, fixed rate for balance transfers, but then a 23.99 percent rate for new purchases, well, you can see how you would want to avoid them. Some cards require you to pay off your new balance every month in full to keep your low balance transfer rates. Any and all conditions regarding your interest rate should be spelled out in the disclosure statement on the back of your application. Although it can be a chore, it wouldn’t hurt to read the fine print above and below the disclosure statement, too. Remember, a credit card is a serious financial agreement that shouldn’t be entered into lightly.
Step three: We’ve mentioned this before, but you need to know what the interest rate is going to be for the new things you buy on your card.
The newest trend in credit cards is to have separate rates for your balance transfer, another rate for new purchases, and sometimes a third rate for cash advances or the use of those handy checks that your card company mails you. It can be next to impossible to keep track of which card you are suppose to use for which purpose and which card you’ll be in trouble in if you use if for the wrong thing, but knowing your cards new purchase rate is important. If there are strings attached to your low rate that say you must use your card for new purchases, you can just spend the minimum and pay the balance off every month.
Step four: If you aren’t confused enough already, some cards actually charge you money to do the thing they are spending all of their time bragging about.
Balance transfer fees are becoming more and more common, and they can quickly erase any sort of financial advantage you are gaining by transferring your debt to a lower interest rate card. Try to avoid cards that charge these fees altogether. The fees generally range from 2 to 3 percent, up to a flat fee of anywhere between 50-100 dollars. There are far too many cards that skip this fee to seriously consider a card that charges one.
Step five: Five years ago, there really was only one way to calculate how much interest you would pay every month.
It was called the average daily balance, and it was pretty much the method that most card companies used. But, as with everything else with credit cards, interest calculation has gotten more complicated. Now, some cards use a two-month method which, in almost all cases, leads to more interest being paid by the card holder. Much like balance transfer fees, go ahead and toss any card figuring your interest this way. There are too many other fish in the sea.
Step six: One of the biggest parts of transferring a balance is knowing what the real rate will be when the intro rate expires.
Head back to your friend the disclosure statement to see what the going rate is. You also need to note if the rate is fixed or if it is variable. If the rate is not fixed, all your credit card company has to do is give you one month’s written notice to raise your rates. They usually do this by enclosing a white slip of paper in with your monthly statement. The writing on this slip of paper is usually very, very small, and it is like that on purpose. They don’t want you to read it. If your rate spikes to more than 20 percent once the intro rate ends, file that offer in the garbage. Even if your credit is poor, there is no need to take on an extra credit card only to have a high rate. Bide your time and wait for better offers.
Step seven: Make sure you understand the difference between a balance transfer and a cash advance.
A cash advance can literally be used for anything. You can get a cash advance on your card by using an ATM and using the PIN that your credit card company sent you. Almost universally, your card will have a very high interest rate on cash advances (usually 23.99 percent). If your balance transfer offer uses the term Cash Advance instead of Balance Transfer, wad up that offer and toss it. They are most likely going to be charging you outrageous interest on your balance transfer. Check the disclosure statement on the back, but be wary of any card that uses this kind of language.
Step eight: Use Common Sense. It sounds silly, but if you get a balance transfer offer and they are promising you the moon, take an extra five minutes and read the fine print. If it sounds too good to be true, it most likely is.