Avoid These Common Credit Card Balance Transfer Mistakes

Avoid These Common Credit Card Balance Transfer Mistakes
That offer to transfer your credit card balances sounds like a pretty
good deal, doesn't it? And it is, until you take out your magnifying
glass and start reading all the fine print that goes along with the
offer. What a lot of people don't realize is that the lender making
such an unbelievable offer wouldn't be doing so if there wasn't some
way to benefit financially. These lenders actually feel safe in
assuming that most people transferring balances won't pay attention to
the potentially costly details that accompany the offer.

Transferring balances from a high-interest rate credit card to one
with no or a lower interest rate can save you a substantial amount of
money if you don't fall victim to these common mistakes.

1. Balance transfer fees

Rare is the balance transfer offer that doesn't come with some sort of
balance transfer fee. It might be a flat rate like $50 or $75 but it's
usually a percentage of the total amount of each balance transferred.
Maybe 3% doesn't sound like much but if you're transferring several
thousands of dollars, that fee can be hundreds of dollars!

Although you may know by now to look for such fees, there's something
else you need to look for: whether or not there's a cap on how high
the balance transfer fee can go. Avoid those without caps. Before
taking advantage of an offer, always do the math. If the balance
transfer fee ends up being more than you would have paid in interest
had you not done the transfer, then don't transfer!

2. Other interest rates

While there might be low or no interest on balance transfers, you're
still getting a new credit card which means you'll still be able to
use it to make purchases. Purchases though, normally aren't part of
the no or low interest deal. In fact, you can expect the interest rate
on purchases or cash advances to be just as high as or higher than the
credit cards you're already using to make purchases. If you're serious
about chipping away at your debt, which is really the best reason to
take advantage of balance transfer offers, then you really should stop
accruing credit card debt!

3. Payment allocation

If you do transfer balances to the new account, and you do make
purchases on this new credit account, you may be surprised to find
that your payments are not allocated the way you thought (assumed)
they would be. Say you transferred $1,000 and during the last month
you made new purchases totaling $200. You make a payment of $300
thinking you'll clear away the new charges and start chipping away at
the balance transfer amount.

Next billing cycle you get your statement and find that the $200 in
new purchases is still there – plus the couple of new charges you made
since then. And all those purchases are compounding interest at a rate
of 16, 19, 22% or more! What happened? Well, as stated in the fine
print, the credit card company allocated your entire payment to the
zero interest balance because – well it's not making any money on that
amount. But it certainly is on those new purchases!

4. Interest rate after intro rate expires

That low or zero interest rate won't last forever and you need to know
how much it'll increase when the stated period expires. That's because
any balance remaining afterwards is likely to be whacked with a much
higher rate. To keep this from happening – which negates any savings
benefits you've reaped so far – make sure you have a plan for paying
off whatever balance you transfer before the rate increases. Also make
sure you don't miss a payment or make payments late. If you do you
might find – without warning – that your zero percent no longer
applies and you're paying more in interest than you were before.