To Balance Transfer or Not Balance Transfer
What's in it for me? Is this something that would benefit me?
What's in it for the bank?
- Transfer fees: These up-front fees can be pretty steep.
- Balance acquisition: In the competitive credit card business, transferring existing balances can be a quicker way to build up loan balances than waiting for you to charge up.
- Finance charges: Sure they're offering you a low intro rate, but they're counting on you to keep your balances past the intro period. If you're reading this column, you probably show a tendency to run credit card balances, so their bet may not be a bad one.
When should you take the bait?
- Your Current APRs are significantly high. Considering that if you're paying 5% up front just to transfer your money, you need to save substantially on your rates to make this pay off.
- The regular APR after the intro period is the same or less than your other rates.
- You realistically plan to pay off all or most of the balance transfer amount before the intro rate expires.
Before you leap
If this describes you, a balance transfer may be for you. But before you leap, call your current card company and tell them what's on the table. Ask them to match the offer and waive the transfer fees. It's in their best interest to keep the balances and keep earning money on them rather than letting you go. If they decline, ask for just a straight interest rate reduction.
Don't confuse motion with progress
There is one thing that you should watch out for and it's why I'm always hesitant to tell someone to take a balance transfer. Lots of times, we confuse motion for progress. We do the transfer and think we've solved the problem. We haven't – we've only made it slightly less expensive. If you think you've solved the problem, you might take your eye off the ball and run up even more debt than when you started or just not make much progress paying it off. That's what credit card companies are counting on.
Article was written by Jean Chatzky for Savvymoney®.