You might’ve gotten blank checks here and there from the company that issued your credit card – it’s sort of fascinating, isn’t it? Normally you’re sending the checks out – not getting them in! Chances are that check wasn’t just something you could write up and cash in – it was probably for a credit card balance transfer.
So what exactly is a Credit Card Balance Transfer?
If you’ve gotten those black checks it’s probably – it might not be; double check! – them offering you a deal to transfer your balance around. The deal means you pick up a fresh credit card in order to pay off the debts of another card – the debt is transferred to another company and it comes with a couple of good upswings for you.
What’s the upside? Most of the new interest rates for a deal like this are low, low rates – usually they hover around 0%, and there’s almost no chance this new rate won’t beat out your current rate by leaps and bounds. That low rate gets you into a position where you’re suffering less interest and able to pay your principle off rather than flounder in the fees that have gathered up.
The Typical Terms
That low rate will usually last around six, seven or eight months from the day you get the balance transferred over – or maybe it’s a little different, but if it is, it’ll state as much. Eight months of interest-free debt – sounds like a miracle, right? Well, let’s look at the pitfalls. Credit card companies might want you to pay off your debt in good time, but they are out there to make their own bank.
- The Transfer Fee: It’s no surprise that each offer comes with a fee – and that fee is usually a percentage of however much you’re getting transferred over into a different account. If you’re thinking that sounds like it can rack up to be a lot of money: you’re right. Ask yourself if the credit card balance transfer is actually going to save you in the long-run, and make sure to look around and see if you offer has a cap on the fee – it might not go above $50 or so dollars, giving you a little peace of mind.
- Speaking of peace of mind … watch out for the grace period: Here’s the other shoe: it shows up half a year or eight months after you swap and it drops hard. The interest rate springs back up and it might be higher than some other interest rates. They gave you that time interest free, and sure enough, that’s money they have to make back.
- It Probably Means A New Company: it’s usually not on the table for you to get a credit card balance transfer into the company that issued your credit card – even if they send you an offer, it’s probably a clerical error.
- You Cannot Miss Payments: You’ve probably missed payments before. If you go through with a credit card balance transfer, don’t miss your payments. The fees and punishments can usually lead to your 0% interest springing back up to a much higher amount.
- Your Monthly Payment Is Low: this doesn’t sound like a bad thing – it sounds great! You only have to pay a small amount per month and you’re getting no interest? Amazing, isn’t it? … it’s not. The credit card company might be trying to get you to take a longer time to pay off your credit card debt with they go through with a credit card balance transfer – if you only pay a few dollars a month while your interest is 0%, that means they’ll collect more when the interest rate springs back into being. Use a credit card balance transfer as an opportunity to pay off as much of your credit card debt as you can.
What about an Alternative?
There is one. You’re probably wondering why your credit company is sending out these insane offers to people who aren’t already with them. Why can’t you get any of this? Well, maybe you can: give your credit card issuer a call and try to get yourself a lower interest rate!
Maybe now you can decide for yourself if credit card balance transfer is right for you – but there’s a little more for you to keep in mind. Credit score is a fickle beast that not many people understand, but know this: if you go over to another company to do the balance transfer and ditch your old company all together, your credit history might take a serious hit. You want to try and keep your older account open – it accrues more history and shows people in the future that you’re a reliable customer and someone who can keep hold of their financials.