What You Should Know About a Credit Card Balance Transfer
At some point in your credit card life, you might become tempted to play the balance transfer game.
Here’s how it works: You get a high balance on your credit card. Rather than pay the high interest rate, you move the balance to a card that advertises a low- or zero-percent rate on transfers. Then that promotional period expires and so you transfer to another card. And around and around it goes.
The balance transfer game, like most tricks when it comes to money and debt, is ultimately a short-term solution to a long-term problem. It’s not the worst thing you can do with a credit card, but it does little to get you out of debt and on the right path to financial responsibility. Here are some of the inevitable drawbacks of balance transfers.
1. There is almost certainly a fee attached to any balance transfer. One some cards, it might only be about 3% which doesn’t seem like much until you start transferring a higher balance over to a new card. A $3,000 transfer with a 3% fee will cost you an extra $100. This plan isn’t looking so hot now, is it?
2. It can be damaging to your credit. Yes, the more credit cards you have can be a detriment to your credit score. Having 1-2 cards is common, even recommended. Having six or seven active cards, however, will make you look irresponsible and will show up on your credit score.
3. That 0% rate is not permanent. Here is what card companies don’t want you to know about that promotional period. The interest rate doesn’t simply go up as soon as the deal expires, it retroactively puts all of the interest from the period on to your card. That means, if the period is for six months, and you don’t pay off the balance, SIX MONTHS worth of interest is automatically applied.
Instead of transferring a balance, consider calling you credit card company and requesting a lower rate – Yes, this can be done, if you are a customer in good standing and you have been with the bank for a long time. Also, hinting to the company that you’re considering switching card companies won’t hurt.
Image credit: debtcovered on Flickr.
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