Many people are familiar with the balance transfer offers that credit card companies sometimes issue on a daily (or more frequent) basis. While these offers might seem promising, what they really offer is often more limited than it appears to be at first glance.
Balance Transfers Move Debt Between Credit Cards
Balance transfers are offers to move outstanding debt from one credit card to a new one. In exchange for shifting the debt to a new card, the issuer of the card promises to give you an incentive. This incentive often comes in the form of 0% APR for a limited time, but it can include bonus reward points of some sort.
For example, a balance transfer card might give you 0% APR on the amount transferred for 12 or 18 months. During this period, you would likely not pay any interest on the amount you transferred from an existing credit card to this new one.
Balance Transfer Credit Cards Still Have Fees
While saving on interest is generally helpful, these cards rarely come without fees.
First, most of these credit cards contain a balance transfer fee. This is sometimes a flat fee, and other times it’s a percentage of the amount transferred (which can get expensive). In either case, it’s a fee that can significantly reduce how much you save -- and usually must be paid or added to the balance upfront at the time of the transfer.
Second, the introductory APR that’s so attractive frequently applies to only the amount transferred onto the card. If you make new purchases on the card, you might incur interest charges on those purchases.
Finally, you’ll only get the interest rate benefit if you pay the balance off during the introductory period. Should you fail to, you’ll at least pay interest on what remains -- and sometimes that interest is charged retroactively back to the date of the balance transfer. Even if it’s not, the interest rate on the new card may be higher than the rate on your current credit card.
Because of these costs, many people never realize the benefits that balance transfer credit cards offer. Some even end up paying more than they would’ve if they never took advantage of the balance transfer.
Consider a Balance Transfer Carefully
Before you simply assume that a balance transfer is right for you, consider the shift of debt carefully. Review the specific offer and make sure you understand all the details, especially the rates and fees.
Additionally, make sure you aren’t using a balance transfer because you’re experiencing financial problems. If you’re struggling financially, a balance transfer could make your situation even worse.
We’re Here to Help!
If you’re considering a balance transfer offer, stop by our branch location or give us a call at 800-343-6328. We’ll help you review the offer and provide insight into whether it’s the right move for your unique financial situation.
Quite often, simply consolidating credit card debt into a lower-rate personal loan helps members pay off the balances quicker and pay less interest.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.