Transferring large balances to low interest rate cards can be very enticing. Creditors make their offers hard to resist. The idea here is to give you a lower rate than what you’ve got right now. As a result, you get a lot more mileage out of your money because more is applied to principal each month. The balance that’s been hanging over your head way too long is finally decreasing noticeably and rapidly. And voila – you’re out of debt before you know it.
On the surface, it looks like a great way to get rid of high-interest rate debt quickly, and save a lot of money too. But it’s not that simple. Before you take that leap, pay attention, or that great offer could become a very costly mistake. Here’s what you need to know:
- Is the special rate permanent?
- If not, then how long will it be in effect?
- What will the APR be when the introductory rate expires?
- Is there an annual fee? If so, what is it?
- Are there balance transfer fees? If so, what are they?
(Note: our experience indicates that some creditors can charge fees as high as 3% or 4% of the balance transferred. And, the higher the balance, the higher the fee. So, a 4% fee on a $2000 transfer would cost you $80. Keep in mind that you will be paying interest on that amount as well; if you pay only the minimum required payment, then that fee of $80 could become very costly.)
Get out your magnifying glass and read the entire agreement – especially the fine print. Review it thoroughly until you’re sure you understand it. If you have questions, call and ask. If they are not answered to your satisfaction, or if you are confused, don’t go with it.
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After you’ve reviewed these questions with the creditors, you need to consider several other factors:
First, don’t assume that you immediately qualify for the offered APR. Remember that the promotion is a general mailing. In the end, not all customers will meet the creditors’ specific criteria for that extremely low rate. So, while you may be lured in with a special rate of 2.9% (with an increase to 17% after, say, 6 months), you may find that you qualify for an introductory rate of 8.9%, with an increase after six-months to 21%.
Next, keep track of exactly what amounts you are transferring, and when. Some creditors will waive fees – but only for the initial amount(s) on the balance transfer form. After that, all other transfers are treated as cash advances, and you will be charged accordingly.
Of course, if you want to hold on to that special rate, make sure you make your payment on time. Many creditors will raise their rate to well over 21% after just one late payment. One more tip: They keep an eye on your payment activity on other accounts as well. If you fall behind with another creditor, don’t be surprised to see a much higher APR on that new card when you get your next statement. |
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If you choose to go ahead with the transfer, you must fill out the form carefully. Otherwise, it may be delayed or cancelled. The transfer itself may not go into effect for two to four weeks. Therefore, as you’re trying to reduce your costs, make a payment on the previous card to avoid any late fee.
Once the new creditor notifies you of the transfer, you must confirm the transaction with the previous company. For your protection, we urge you to document this by noting what was said along with the date, time and name of representative. To be on the safe side, be sure you receive a billing statement from the previous creditor reflecting a zero balance (call the company and request one if they don’t send it.)
Once that’s done, what are you going to do with that old card? Cancel it, of course! You can do this by phone but we recommend that you follow this up with a letter to the creditor, confirming that the card will be closed. Be sure to tell the company that any credit bureau notation must state that the card was cancelled at your request. |
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