Transferring your credit card balances (balance transfers) can be an effective way to save on interest you would otherwise accumulate on a high-interest credit card, and can also increase your credit score as you clear up your credit lines. However, there are some things you need to be aware of before you authorize that transfer. Many credit card companies impose hidden fees and charges on certain types of transfers, and almost all will charge a fee based on the percentage that ends up getting transferred. Since you don’t know how much you will be eligible for, the transfer can end up costing you much more than you realized.
Here are some of the best ways to get more out of credit card balance transfers:
Review the Terms Closely
Very closely. Even if you are entering an agreement where you will be interest free for a short period of time, the average rate on that card might be much higher than the rate on your credit card you are transferring the balance from. Make sure you pay close attention to the fine print so that you are aware how much of an increase this would be. If you don’t think you will be able to pay off most or all of the transferred balance during the promotional period, you may be better off skipping the balance transfer altogether.
Calculate the Fees Yourself
Most credit card companies will charge a balance transfer fee that’s calculated as a percentage of the amount that gets transferred. Assume that the entire amount you request is going to transfer over and calculate the fee yourself before you authorize the transfer. This way, you’ll have a much better idea of what to expect if you are approved.
Create a Realistic Payoff Plan
If you’ve been enticed by a great introductory rate or zero-interest rate period, put together your own payoff plan so that you can pay off that balance before the promotional period ends. Don’t make the mistake of making only the minimum payment and carrying that large balance forward. You’ll end up collecting interest on that high balance, and the post-introductory period rate may be much higher than the card you originally had.
Don’t be seduced by the first balance transfer promotion you receive in the mail or via email. Credit card companies are very competitive and you might be able to find a better offer when you shop around. Pick at least three different cards and compare the terms and rates to find the best match. And don’t be afraid to talk to the credit card companies directly. Explain that you are interested in transferring a high balance from another card and are shopping around. You may be able to negotiate fees and other terms just by talking to someone.