How to avoid headaches -- and extra fees -- when transferring credit card balances
By Lucy Lazarony • Bankrate.com

The ads make it seem so easy. Transfer that hefty credit card balance to a card with a super-low introductory rate and save, save, save. What could go wrong?

Plenty -- if a credit card shopper fails to read the whole offer including all the fine print on the back. All those details matter and missteps can hurt a person's credit record and bottom line.

So get out that magnifying glass.

"You can't just read the bold print. Read the account agreement," says Mike Kidwell, vice president of Myvesta.org. "Make sure you agree with all the terms on that card. If you don't, don't go with it."

Here are some basic questions to ask as you comb through that low-rate credit card offer.

• How long does the introductory rate last?
• What is the card's annual percentage rate after that teaser rate expires?
• Does the teaser rate apply to transferred balances or new purchases or both?
• Does that card have an annual fee?
• What about late fees and over-the-limit fees?

Watch out for balance-transfer fees
Another key thing to determine is whether there's a fee for transferring the balance. Some issuers charge transaction fees as high as 4 percent. So the higher that balance, the higher the transaction fee. A 4 percent fee on a $5,000 balance would cost $200. Some companies cap transfer fees at $25 or $50.

"People get tripped on that quite a bit," says Howard Dvorkin, president of Consolidated Credit Counseling Service in Fort Lauderdale, Fla.

Be prepared to read through the credit card offer a few times. A lot of the information is hard to decipher. For example,one offer waives fees for "initial balance transfers" only. These are the transfers that are authorized when the customer accepts the Visa card and completes the balance transfer form.

The credit card company treats every other balance transfer as a cash advance and charges the greater of $2.50 or 2.5 percent of the transaction amount as a fee.

"Unless it's very clear to you what the costs are, call the issuer and ask," says Gerri Detweiler, co-author of Invest in Yourself: Six Secrets to a Rich Life.

Keep in mind that not everyone who gets an offer qualifies for the super-low rate. While an offer may boast a 3.9 percent teaser rate that bumps up to 17 percent after six months, a person may qualify for a card with 7.9 percent teaser and a regular annual percentage rate of 21 percent.

With one late payment, kiss that low rate goodbye
Also realize that it may only take one slip-up for that super-low rate to disappear. For example, you may start with a 9.99 APR, but one tardy payment bumps the rate up to 21.99.

Once comfortable with the terms of the offer, be sure to fill out the balance transfer form carefully. Incomplete information may halt or delay a transfer.

It's also a good idea to make the minimum payment on the old card while waiting for the balance transfer to take effect -- which may take anywhere from two to four weeks.

The last thing a person who is trying to minimize their credit card costs needs is a $29 late fee and a penalty rate.

The new card company may send a notice saying the balance transfer is complete. Be sure to call the old card company and verify this. Write down the name of the person you talked to, the date, the time and what was said.

To avoid any mix-ups, experts urge people to wait until the old credit card company sends them a billing statement with a zero balance. If the company doesn't send one, request it.

Next step: Cancel the old card. How come? First off, plenty of people out there have trouble avoiding the temptation of an open credit line.

When too much credit hurts
Second, too many open lines of credit can affect a person's ability to qualify for a mortgage or a car loan.

Lenders view any open credit lines on all unused credit cards sitting in a consumer's wallet as potential outstanding debt. A person carrying a $2,500 balance on credit cards may actually have credit lines of $35,000 or more. That remaining $32,500 would cause lenders to raise their eyebrows.

Experts also urge people to focus on paying down the transferred balance, ideally before the teaser rate expires. At the very least, people should continue to pay the minimum payment they were making on the old card or more if they can afford it.

Too often, people take one look at the lower minimum monthly payment owed on their new card and send that in -- which barely chips away at the balance. And sometimes people see the lower payment as a signal to charge even more.

"When people look at the monthly payment on a new credit card and it's $20 less than it was, they say, 'Hey, I can afford to charge more,' " says Kerry Clark, manager of branch services at Consumer Credit Counseling Service in Atlanta. "And then they get slammed six months later."

The balance grows and the teaser rate expires and they end up with more debt and higher minimum monthly payments then they had with the old card.

People transferring balances to cards with different rates for balance transfers and new purchases may also want to think twice about running up a lot of new purchases on that card.

"The bank will usually apply payments to the lower rate balance first, thereby allowing you to run a lot of interest debt at a higher rate," says Linda Sherry, editorial director of Consumer Action, a consumer advocacy organization in San Francisco.

This tactic allows card issuers to maximize the interest they collect.

Say a person transfers a $2,000 balance onto a new card with a 3.9 rate for balance transfers and 17 percent APR for new purchases. The cardholder then charges a $45 dinner with the card. The $2,000 must be paid in its entirety before any payment is directed to that restaurant bill -- so the price of that dinner keeps climbing with each passing month.

Find one card and stick with it
Consumer experts also urge people who transfer balances to a low-rate card to stick around for awhile.

"Jumping from card to card can really hurt you. You're moving too fast to establish credit," says Kidwell. "You need to pick one and stay with it. Plan to stay a year or more. You're actually damaging your credit because you're not building a credit history."

Not only is it tough to qualify for low rate card offers, holding on to those rates is harder than ever. It's no longer enough to be an on-time payer on that low-rate card. Card holders need to keep their entire credit profile clean.

And once a card company finds a blemish on that credit profile, be prepared for a rate hike.

"If you go delinquent in one card. They've got you. They know you can't transfer that balance to another card so they bounce you to a higher rate," Dvorkin said. "These companies are looking for an excuse to charge you more. They're looking for revenue ... If you don't have perfect credit they're going to take advantage of you."

--Updated: Oct. 19, 2001