Credit Card Balance Transfer Mistakes to Avoid

A balance transfer is an opportunity to transfer debt from a higher interest loan or credit card to a low interest credit card. What could be better than saving money, right? Well, as everyone knows, credit cards are the kings of fine print, and when it comes to balance transfers, reading the fine print makes all the difference between saving tons of cash or being hit with tons of fees.

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  1. Watch for the Balance Transfer Fee
    Balance transfer credit card promotions that don’t include a transfer fee are about as common as unicorns. The most important detail when looking at balance transfer fees is whether or not there’s a fixed fee or a fee based on a percent of the balance. A fixed fee is preferable because when it comes to percentages, three percent may seem like nothing, but over the course of thousands of dollars, can add up to a lot of money. Some percentage-based fees have a cap—note that. Then do the math. If the fee is more than you’d save in interest, then maybe it’s not such a great idea to go with a balance transfer card offer.
  2. Using the Card for Other Payments
    So, you have this great new credit card that you’ve transferred your balance to, and their introductory no interest offer on that balance lasts for months. Great, right?! Well, not if you’re using the card for other purchases. More than likely, those purchases will not be at the introductory rate, and they will sit there, accruing interest until you’ve paid off your no-interest balance transfer. By directing your payments to go towards the lowest interest-based debt first, credit card companies can still make lots of money even on small purchases sitting on the bottom tier.
  3. Sky-High Rates After the Promotion Ends
    Look at the rates for when the promotion-period on your balance transfer ends. Are they higher than the ones you’re already paying? Then this might not be a good deal, unless you can pay off your balance transfer during the promotional period. Also, be aware of the interest rates for cash advances and other purchases. If these are comparable to the card you already have, great. But if they’re much higher, proceed with caution.
  4. Missing a Payment
    This is a big no-no when you’re taking advantage of a low introductory rate balance transfer credit card, since even one missed payment can negate the introductory rate and send your transfer to the default interest rate, which may end up being 25% or higher.

Take home lesson: Pull out the magnifying glass and read the offer carefully. It could mean the difference between saving a bundle, or getting blindsided.


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Published May 2, 2012
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