Shakespeare wrote, "Be moderate, be moderate." This is good advice when it comes to credit card balance transfers. Balance transfer credit cards allow customers to transfer balances on existing high-interest cards to a 0% or low-interest credit card. For consumers paying over 15% interest, that can be a very attractive offer.
Transferring the balance of a high interest credit card to a 0% card can make good financial sense. No one wants to pay more interest than is necessary. Before deciding on a balance transfer, ask yourself these questions:
If you answered 'no' to all of these questions, a balance transfer card might be a good option for you. If you answered 'yes' to even one of these questions, read on before you make a final decision.
Moving your current credit card balances to a balance transfer card could be a bad idea for the following reasons:
Experts agree that balance transfers from credit cards with interest rates below 11% should be avoided. What many people don't understand is that the new lower or zero interest rate only applies to the amount of money you transfer from your previous credit card. New purchases applied to a balance transfer card are charged at a greater interest rate. The interest can be as high as 25%, which may be much more than you are currently paying.
Additionally, credit card companies apply your monthly payment to the 0% balance first, leaving your new purchase balances accumulating interest at the higher rate.
By using one of the many online balance transfer calculators you can determine just how much money you can save (or lose) by transferring your credit card balances to a new 0% card. An excellent calculator can be found at consumer loan advocacy group. Be prepared with current balances, APR, the length of the introductory interest rate period, and the transfer fee.
While infrequent use of balance transfer cards can be a great way to manage interest costs, be careful not to overuse them.