If you do it right, transferring a high rate credit card balance to a card with a lower interest rate can help you save money in finance charges and pay down your debt much faster.
Some people treat balance transfers like a shell game. They keep their money flowing from one low (or sometimes zero) interest rate card to another to avoid paying hefty finance charges. This strategy can work well if you are careful. But there are some pitfalls you will have to learn to avoid.
Verify that there are no fees for transferring your balance. Balance transfer fees are usually waived when you are first opening a new account. Once you are a customer they will charge you a percentage of the balance transfer as a fee. This will cut into the amount you are saving by transferring the balance.
So hurry up and transfer all of your higher balances when you first open the account. Don’t wait until later.
Don’t use the card for purchases or cash advances. The whole idea is to take advantage of the lower rate so you can pay it off faster. Adding more charges to it will just dig you deeper into the hole.
Be careful if you plan to continuously switch from one low-rate card to the next. Some people consider this a smart way to ‘work the system.’ But it may cost you in the end. Part of your credit score is based on the number of times you have requested credit and the number of accounts you have had open. When you later go to apply for a mortgage or auto loan you may find that all of those credit card flips have hurt your score and you no longer qualify for the best interest rates. If that happens, you’ll be paying more in interest charges every month.
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>the credit card issuer will apply your payment to the category with the highest interest rate.
Don’t you mean the lowest rate? They want you to pay off the low rate while they collect the high rate on you new purchases.
PS found you from Dennis Edel’s blog. Good luck on the new site.
Ned Carey´s last blog ..Why Commercial Real Estate is the Best Investment
Hey Ned, thanks for stopping by. You’re right…my post was a bit misleading (I must have been half asleep when I wrote it). I edited it and corrected the error you spotted. Thanks!
Once you’ve opened an account with them, how long is it usually before they start charging you the balance transfer fee you talked about? I’ve never done this before and have been thinking about it for my boyfriend lately.
Hi Marci, thanks for stopping by. You’d have to check the fine print in the credit card offer. Generally they only waive the fee when you first activate the card. If you decide a few months later to transfer a balance you’d likely get stuck with a fee.
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