When balance transfers make sense

Good credit score? Paying high interest? Transfer now.

By Sally Herigstad

To Her Credit

Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). Ask a question.

I'd like to apply for a credit card with a lower interest rate, but my credit report still shows some old, past due debts that I paid off several years ago. The old past due bills should come off of my credit report in May 2009. My credit score right now is 719.

I also have two credit cards with balances of $4,500 and $1,200 that I will pay off by July. I'm paying over 20 percent interest on these cards.

Can I get a new card with a lower interest rate now? Or should I wait and try next year when the old debts are removed and my credit score is better?
-- Danita

Dear Danita,
You need to move your balances out of the 20 percent interest accounts now! The high interest you're paying could be better spent by reducing your current credit card balances. On the $5,700 ($4,500 plus $1,200) you owe, you're paying about $95 a month in interest. If you find a balance transfer card with an 8 percent rate, you could save $57 a month in interest charges. Find a lower rate as soon as you can -- not in July, and certainly not next year.

A credit score of 719 is not bad, and it shouldn't keep you from getting a lower interest credit card. You're well above the danger zone of 620 or below -- the levels at which people have a difficult time getting loans and credit. The average credit score is somewhere in the high 600s to low 700s, depending on the credit score model. Some experts say that anything over 720 is considered a good score, and it doesn't make much difference how far above 720 your score is. Check your score again because as you've been paying off your debt, your credit score may be higher already!

Another thing to remember is that credit card companies do not just look at your credit score when they decide whether to approve your application. They will also look at other factors on your application, such as your employment history and how your income compares to your debt load. Two people with the same credit score, applying at the same bank, may not get the same results.

The quickest way to lower your rate on the $5,700 you owe is to ask your current credit card companies for a lower rate. Call the customer service number on your statement, point out the fact that you've been making payments faithfully, and ask if the rate can be lowered. These requests are often honored just for the asking (and to keep your business!)

If you don't have any luck getting your rates significantly lowered on your current cards, it's time to go shopping for a new card. Look for the best cards that take balance transfers. Because you are paying your balances off quickly, a card with a low introductory rate might be your best deal. Make sure the new card doesn't charge a balance transfer fee that outweighs any interest you'd save. I'd rather pay a reasonable interest rate with no extra fees than get a 0 percent intro rate card and pay a 4 percent balance transfer fee.

To see how much you can save by transferring to a lower interest card, check out CreditCard.com's balance transfer calculator. When you find out how much you could be saving every month in interest, you'll want to get out of those high interest accounts sooner, not later.

Sally Herigstad writes about women and credit every week for CreditCards.com. Herigstad is a writer and finance consultant for MSN Money, a personal finance software product. She is also a member of the Washington Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Her Web site is http://helpicantpaymy bills.net. Sally Herigstad lives in Kent, Wash., with her husband Gary. They have two grown children, Valia and Grant.

To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.

Published: May 8, 2008