The Trouble With Balance Transfers
Whether they are sent to your mailbox or your inbox, nearly every credit card carries with it an offer for balance transfers. While a balance transfer can be a powerful tool to help you get your finances on track, they can also add to your financial troubles if not used correctly.
Balance transfer offers allow consumers to consolidate their debt, often with promotional periods of 0% or other low interest rates. Other factors to consider include:
- Promotional rates are typically approved only for consumers with an excellent credit history. If you don’t qualify for a promotional interest rate, the transfer could cost you a lot more in the long run.
- Promotional interest rates typically end after six, 12 or 18 months. If you don’t pay off the balance in full by the time the promotional period expires, your interest rate will not only rise to your standard APR, but you may also be charged back-interest, which is interest over the entire time period in which you carried the balance.
- There is usually a fee to complete the transfer — often at 3% of the transfer amount. If the amount you will pay for the transfer is more than what you would pay in interest on your old card, then it is not worth the cost.
- Completing a balance transfer will give you more credit available on your original credit card. While working to pay off the balance transfer amount, it is critical that you do not incur more debt on the original card. Using that available credit could put you right back where you started.