6 Things to Know About Balance Transfer Credit Cards

Credit card balance transfer offers can be a good deal, because they often offer a lower interest rate, which can allow you to pay down debt while also getting a more manageable monthly credit card payment. However, there can also be some pitfalls to watch out for. Here are six things you should know about balance transfer credit cards.

Those balance transfers cost money
Though transferring a high-interest credit card debt to one with a lower interest rate can save you a lot of money in finance charges, some of that savings will get eaten up with fees. Almost all balance transfer offers include a transfer fee of anywhere from 3 percent to 5 percent of the balance you are transferring. That’s $150 to $250 on a $5,000 balance, so you need to weigh the fee against how much you can save on interest.

Your rate could wind up higher
Card companies entice people to transfer balances by offering low introductory or “teaser” rates. This can be as low as 0 percent for 12 months or more for people with good credit. However, once that rate ends, the rate will jump, and it may be more than you are paying now. If you don’t plan to pay off your balance within the introductory period, you need to pay attention to what the regular interest rate is.

You may not qualify for the best rate
Most advertised balance transfer offers are only available to people with excellent credit, usually with credit scores of 750 or above. If your score is less than perfect, you may get a higher rate or not be approved for a transfer at all, and you may not find that out until after the transfer has gone through.

There’s probably a different rate for purchases
Most balance transfer offer teaser rates only cover the amount you transfer. There is likely to be a separate and much higher rate for any purchases you make on the card. Read your terms very closely so you know whether the low introductory rate covers purchases, too, or just the balance transferred.

Payments will go to the balance with the lowest rate
If you do have different rates for balance transfers and purchases, any payments you make will be applied to the balance with the lowest rate. So your payments will go toward your low-rate transfer balance, and your higher-rate purchases will accrue interest charges.

You could lose the rate
If you make a late payment, your low teaser rate will go away immediately. If that happens, you could be faced with an even higher rate on your credit card debt than you had before the transfer.

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