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Transferring a balance to a cheaper
credit card -- a tricky money saver
 Transferring
your credit card balance, or balances, to a lower interest rate
card can save you money.
The process is a tricky one -- there are a lot of
possible fees, penalties and 'catches' to beware of lest this move
actually end up costing you money.
It is also getting harder to do. Credit card companies
are trying to stop customers from leaving, and they are also trying
not to gain customers who are only there to take advantage of introductory
rates before they move on again.
This is one credit card move that absolutely demands
you read -- and understand -- all of the fine
print. Different card companies handle it in different ways
and have a wide range of fine print containing a myriad of rules.
But just because hopping from one card company to
another is harder than it used to be doesn't mean you can't do it.
There are fewer and fewer super-low teaser rates for balance transfers,
but there are low fixed rates offered for balance transfers (that's
the card company's way of getting you to bring your balance and
stay).
Key numbers
If you do not transfer to a fixed rate (or even if you do because
fixed doesn't mean fixed forever) there are three figures of prime
importance -- the rate you are getting, how long it lasts and what
it jumps to when that rate is over. With a fixed rate you may not
know when it will change, but there will at least be a guaranteed
period before it can change.
After you have those numbers, check out all of the
related costs:
- Does either company charge a fee for moving the
balance?
- Is that fee a flat sum or a percentage?
- Does your old card company charge you another
fee for terminating your account?
- What fees and rates does the new company charge
for new customers for new purchases?
- Will both card companies notify you when the
transfer is done?
- Under what circumstances can the new company
change the introductory rate it gives you for your balance transfer?
Beware of 'tiered' arrangements. These will let you transfer a balance
and give you some sort of interest amnesty or super low rate for a
period, and then there may be another rate or arrangement for some
more time, then a third (or even a fourth) rate. The trap here is
that you may start with a great arrangement and slowly find your deal
getting worse and worse.
Different rates
There may also be different rates for purchases you make with your
new card. For example you may transfer with no interest for three
months on your transferred balance and any new purchases. Then for
three months you may have different, but not too bad, rates for
what's left of the balance but a higher rate for new purchases In
the third and sometimes fourth tiers both rates could rise to the
point where you don't have a good deal any more.
So make sure you know how you intend to pay off your
transferred debt.
If you are sure you can pay it off during that interest
payment holiday or super teaser rate it may be a good deal. If you're
not sure, think again. If you know it won't happen, go to your calculator
and work on different scenarios. You may find that if you haven't
paid off enough of the transferred balance in, say a year, you're
actually moving into a worse deal.
Some card company's limit how much you can transfer
or how many times you can transfer a balance. Make sure you use
your calculator because the more complex the transfer arrangements
the more chances the movement might not be as beneficial as your
at first thought.
One thing is surprisingly commonly overlooked in
balance transfers -- are there fees? Not only might the new card
company charge you, but your old one might charge you a fee for
the transfer and even a penalty fee for closing the account. They
may also charge you more money to manage any money you leave behind
with them if you don't transfer your total balance. Check it out,
be sure!
Also be clear just how long the whole process will
take, when you stop paying on the old card and start paying on the
new. You don't want to find you're paying for a balance in two places
at the same time, however briefly.
Make very sure too that you know under what circumstances
your new card company can change the rate your transfer is being
charged. Sometimes a late payment, or maybe some other obscure transgression,
will automatically end your deal and bounce you into a stratospheric
rate. Know every circumstance under which they can do this.
-- Updated: Dec. 20, 2004
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