Step slowly onto the balance-transfer
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.
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 card issuers
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 2.99 percent rates
on balance transfers, while the AT&T Universal Card boasts zero-percent
introductory rates on transferred balances for a year. Discover's Platinum Card
offers the same deal for eight months.
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 19.99 percent rate.
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 six 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 9.99 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
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 $50. 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
"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
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
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 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: March 16, 2003