Comparing balance transfer credit cards
By Ben Woolsey
There may not be as many 0 percent balance transfer offers coming from credit card issuers these days, as the nation struggles through the credit crunch, but they are still an option if you've got strong credit. Before you jump at one of the deals, make sure the cards are stacked in your favor. If possible, be sure to get a credit card that offers a low interest or 0 percent balance transfer provision.
An often misunderstood procedure to be aware of involves how banks allocate your credit card payments amongst balances that are priced at different rates. If you study the fine print in most offers, you will learn that some or all of your future credit card payments are allocated toward the lower interest transferred balances because they are most costly for the credit card issuer. This may not be in your best interest since you may have run up a separate and higher-rate credit card balances on new purchases (which you would want removed first). In this scenario, none of your higher interest rate balances would be paid down until your transferred balance was gone.
It is also important to realize that not only credit card balances can be transferred. Other types of high interest debts, including installment car and appliance loans, can be moved to a low interest or 0 percent balance transfer credit card. This is typically handled through credit card convenience or balance transfer checks provided by the issuing credit card bank.
It is important to note that some of these checks can carry substantial fees. While, in the past, these maxed out at 3 percent of the amount transferred, credit card issuers have recently been eliminating the cap, so be sure to read all the disclosure copy. If this information is not provided at the time of application, take it upon yourself to inquire with the credit card issuer since this can be a significant shock if not expected. Even with the fees, however, it is usually a money-saving maneuver to transfer balances from a high interest rate loan to a low interest or 0 percent balance transfer credit card.
Study the fine print and decide how you plan to use the card going forward. In its report, "What's draining your wallet? The real cost of credit card cash advances," nonprofit organization the Center for Responsible Lending urges borrowers to use separate credit cards for borrowing at a promotional rate, purchases and cash advances in order to first make payments to the card with the highest APR. It is advisable to control new credit card spending while attempting to pay down an outstanding balance, or to not spend anything on a credit card at all until the balance is paid off. Once this balance is transferred to a low interest or 0 percent balance transfer credit card, you should have some breathing room to begin chipping away until it is gone for good.
See related: Balance transfer calculator
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Balance transfer basics
