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Learning About Balance Transfers

Dec 9, 2007
When you're looking at working out what new credit card to go for, there are a fair portion that make a point to offer a low rate balance transfer and low interest for the first however-many months if you switch to them. But what does that actually mean?

Ignoring any other little snazzy deals the creditors offer, if you have a fairly hefty credit card debt as it is then transferring the balance over could be a nice little way of getting the interest down for a few months.

Let's say you've wound up with $1,000 on your credit card debt. The interest on that can quite happily cost you a fairly chunky amount as it is - let's say $100. And that happens every month until you can get the amount owed down. If you're struggling to pay the interest as it is, moving your balance to a different credit card (that offers free balance transfers) and a nice, low rate - potentially nothing - on the interest on that balance for the first few months means that instead of paying off the interest, you're paying off your debt. After the first month with the new credit card you'll have paid the $100 and now only have a $900 debt, and still have paid exactly the same amount you would have if you hadn't transferred the balance over. In a few months time you can trim that $1,000 down to a much more manageable figure. So, when the zero percent interest period on your balance transfer runs out you can now afford to pay both the actual interest and still start working on getting the entire debt paid off.

The question that has to be asked is: what's the catch? If you manage it carefully, there really isn't one. Just make sure you read the small print to check any cunningly concealed charges. And make an effort to avoid any details in the contract that pull you in to a horribly drawn out and expensive payment plan, or some other issue that arises further down the line. Most of the time, though, if a balance transfer would be enough of a benefit to you for you to be considering it, then the other charges are pretty minor. It doesn't mean you can skim over them, but they're really not what the main concern with balance transfers is.

When you keep hopping between credit cards you could make some pretty nasty long term problems that won't arise for at least a few months. Why? The first time or two that you transfer the balance over to another creditor shouldn't be a problem. Some credit cards base a lot of their new customers on what they can entice over from other companies, but each time it gets noted down in your credit history. Most of the time that you transfer your balance over to another creditor; they won't be overly impressed if you leave them soon after their low interest rate has ended. Be careful with it, though, and you can save yourself a nice sum of money.
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