Too Many Credit Card Balance Transfers Can Be a Bad Idea

/ BY / Credit Cards

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.

When Balance Transfers Are a Good Idea

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:

  • Am I ever late paying my credit card?
  • Have I transferred balances several times already?
  • Do I use balance transfers to make my debt load manageable?

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.

When Balance Transfers Are a Bad Idea

Moving your current credit card balances to a balance transfer card could be a bad idea for the following reasons:

  • Late payments may be a sign that you have incurred too much debt. If you are juggling payments or waiting for your next paycheck to pay your bills, it may be time to stash the credit cards and make a payoff plan instead. Consolidating all of your credit card debt onto one 0% interest credit card might seem like a great idea, but not if you are in the habit of making late credit card payments. One late payment will kick your interest rate to the highest allowable rate, well into the 20% range.
  • Balance transfers are no substitute for a sound family financial plan and a workable budget. Frequent use of balance transfers means you are moving your debt instead of paying it down. That's bad news for your financial health and even worse news for your credit status. Your banker will want to know why you are transferring your debt instead of paying it off, which could result in a declined application for new credit.
  • Credit card companies charge transfer fees that amount to three to four percent of the transferred balance. Transferring several balances can be quite expensive, canceling out any savings your transfers may have earned.

New Purchase Interest Rates and Payment Applications

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.

Will You Really Save Money?

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.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.