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Step slowly onto the balance-transfer bandwagon

With the economy slowing, lots of people are looking for ways to lower monthly expenses and free up more cash.

Transferring a credit card balance to a card with a lower interest rate can help.

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There are plenty of credit card deals to choose from. But finding a good one takes some work and quite a bit of close reading. Let's sift through some of the latest offers.

Call it the big tease. Several major credit cards are offering rock bottom, introductory rates on balance transfers. These teaser rates tend to last five to nine months.

The Chase Platinum MasterCard comes with zero-percent introductory rates on balance transfers for six months, while the AT&T Universal Card boasts zero-percent introductory rates on transferred balances for nine months. Discover's Platinum Card offers the same deal for a year.

You'll need to be an ideal card customer to enjoy these kinds of low promotional rates. One slip-up is all it takes for an issuer to jack up interest rates. For example, pay late once on AT&T Universal Card and the zero interest rate gets replaced with a 28.49 percent rate.

New-purchase promos
Other card deals reward you for transferring balances with super-low introductory rates on any new purchases you make with the card.

With the American Express Blue Card you pay no interest on new purchases for 15 months. You'll be charged a fixed annual percentage rate of 9.99 percent, 10.99 percent, 12.99 percent or 14.99 percent (depending on your credit). With Blue, you also pay a fixed rate of 3.99 percent on balance transfers. The rate lasts until those balances are paid off.

Other issuers that promise to hold steady on balance transfer rates include Bank of America. One offer for a Bank of America Gold Card boasts an 8.9 percent fixed APR on transferred balances and the same for new purchases for six months.

Keep caution by your side
As nice as all these deals seem on the surface, there's plenty to be wary about. The penalties on these low-rate cards are often severe, some companies charge a "transaction fee" for the privilege of transferring a balance to their card.

Several issuers offering low rates on balance transfer charge fees of 3 to 5 percent when you accept their offer. A 4 percent fee on a $1,000 balance would cost $40. Some issuers cap fees at $35 to $75. Most issuers charge these fees as soon as a balance is transferred onto a card.

Keep your eyes peeled for transaction fees when weighing different balance transfer offers. Avoid cards that charge hefty fees.

"It's really very tricky. They have all these sneaky conditions," says Howard Strong, author of What Every Credit Card User Needs to Know. "You need to be extremely cautious."

Bringing over your balance
Once you've settled on a card offer, you're ready to start the actual balance transfer process. This Bankrate.com worksheet will walk you through the steps.

It's important to continue to make minimum payments on your old card while waiting for a balance transfer to take effect, which could take four weeks.

Be sure to close off old credit lines. Otherwise, you may be tempted to charge away on your old cards. Darrin Sandoval, director of operations at Consumer Credit Counseling Service of Greater Denver, sees this all the time.

"They may transfer a large balance to a card with a low rate on balance transfers but they continue to use the old card," Sandoval says. "Soon both cards have large balances on them."

It's also important to realize that not everyone qualifies for the rock-bottom interest rate promised in big bold print. The teeny, tiny print near the end of the credit card offer explains this.

"It's the old story. The big print giveth and the small print taketh away," Strong says.

So even though the offer might say 1.9 percent interest rate on balance transfers, you may qualify for a 10.99 percent rate.

Getting your transfer's worth
Let's say you land a super, low-interest credit card deal and successfully transfer a hefty balance onto it. And you remember to close off your old credit line. So far, so good.

For the next six months or so, your credit card payments will be cut in half. With the money you save you may finally be able to build up a small emergency fund so you'll have some cash on hand should the worst happen and you lose your job.

As nice as having some breathing room in your budget may be, you're not done yet.

"That's only the first step," Sandoval says.

The best way to free up more cash for the long haul is to eliminate credit card debt. You'll need to continue to pay as much as you can on those credit cards.

You'll also want to adjust your spending habits to avoid running up huge credit card balances in the future. It's all a matter of learning to live within your means.

Sandoval advises people to limit credit card charges to emergencies and for purchases that can be paid off in 90 days.

 

 
-- Posted: Aug. 24, 2004
   

 

 
 

 

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