Credit Cards: Is a Balance Transfer Offer a Good Idea?
Is transferring a balance from one credit card to another worth it? The short answer is “maybe.” Whether or not a balance transfer is a good idea depends largely on the fine print on the offer; some terms are more consumer-friendly than others. Reviewing the entire offer before making a credit balance transfer is the best way for consumers to protect themselves from excessive penalties and fees. Without a careful review of terms, that tempting offer could quickly become a costly nightmare.
What are Balance Transfers?
A balance transfer offers a consumer a line of credit at a reduced rate for a specific amount of time. The customer can then use the line of credit to pay off existing credit card bills that have a higher interest rate. The transferred balance needs to be paid off within a set period of time, which will vary depending on the offer. If the balance is not paid off in time, interest will be added to the account.
Consumers can receive solicitations for credit balance transfers in several ways. Targeted direct-mail pieces offering low or no interest fees can arrive in the mail daily, and online balance transfers are offered via email and Internet advertisements. No matter what form the offer takes, close perusal of the terms is the key to evaluating a zero-balance transfer offer.
Evaluating a Balance Transfer Offer
Any balance transfer credit card offer should be evaluated based on the interest rate offered, transfer fees imposed, and the length of the promotional period. Giving up an interest rate of 6 or 7 percent only makes sense if the transferred balance will be paid off before additional interest is imposed; some balance transfer programs have rates that skyrocket after six months. Banks offer programs to make money, not to be charitable, so the fine print may contain costly details that should be considered when evaluating a balance transfer credit card, including:
Interest rate offered. If the existing rate is in the double digits, and the offered rate is 0 percent, it may be worth taking advantage of the offer, provided you can pay off the balance during the specified period. A close reading of the terms is required; if the interest jumps to a high rate after a few months, it is probably not worth doing.
Fees. Checking the plan details for hidden fees will yield additional information. Consumers dropping a 6 percent credit card by shifting the balance to a 0 percent credit card may be getting a great deal — unless they pay a 5 percent transfer fee. Regard any plan that charges an upfront fee with caution. Fees or penalties for late payments can come as a shock as well, so these items should be reviewed before the balance transfer is made.
Duration of the initial offer. A perusal of the terms for traditional or online balance transfers should reveal the length of time the teaser interest rate is offered. The minimum allowed by law is six months, but some credit cards offer a year or more. If the balance can’t be paid in full before the terms expire, the decision to make a transfer could end up being a costly one.
You can come out ahead by opting for a balance transfer, provided you read the fine print and are currently paying a high interest rate on your credit cards. If you won’t pay off the balance in time, though, a balance transfer could cost you.