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Balance debt transfer pitfalls

By Janna Herron · Bankrate.com
Monday, December 31, 2012
Posted: 1 pm ET

Staring at a massive credit card bill as the year turns? You may be tempted to minimize that leftover holiday debt by transferring the balance to a new card with a low or no-interest introductory period. Before you make that transfer, however, beware the possible pitfalls. Balance transfers work for consumers who have good to excellent credit and who are committed to paying off their balance in a short time.

If you're thinking of a balance transfer, consider these two questions first.

1) Does it add up?

There's some math to consider before transferring a balance. The key variables? The intro interest rate, the rate after the teaser period ends, the length of the teaser period, the minimum payment and the balance transfer fee.

Is the intro interest rate substantially lower than the one you're paying now? And is the intro period long enough to pay off the balance at the new interest rate? If not, then you'll need to factor in what your interest rate will be after the teaser period is up. You'll need to consider how that new interest rate will impact your ability to pay the remaining balance. If the new rate is meaningfully higher than your current rate, a balance transfer may not be right for you.

Also, know what the minimum monthly payment will be after the balance transfer. Is it affordable? If not, look around for another offer. Finally, don't forget to check for a balance transfer fee, which is usually about 3 percent of the balance. If there is one, it could make the transfer too costly.

2) Do I meet the standards?

Balance transfers aren't given to everyone. Those who qualify for a zero percent interest rate usually have great credit with FICO credit scores in the mid-700s or higher. Consumers with lower credit scores may qualify for a low interest rate instead.

There's also a chance that you won't be able to transfer your entire balance if you have a sizable debt. Check the fine print of any balance transfer offer to see if there are any limits, which vary by issuer. If it doesn't say, you may not find out how much debt changed accounts until after the transfer is completed. Still, getting a low or no interest rate on a good chunk of debt will help you chip away at it faster.

Have you used a balance transfer to try to get rid of debt? Was it successful? Why or why not?

Follow me on Twitter: @JannaHerron
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1 Comment
Tom Irvin
January 04, 2013 at 2:49 pm

Great article! YES by all means BE CAREFUL!
Just yesterday, I checked with a credit card company about our 'balance transfer' from 3-7-12 (one year interest free). We have a 'balance transfer' amount, and an amount over and above it from a few special purchases that we had agreed to put on the card. With the end of the one year free interest period coming up I called to see what the 'balance transfer' balance was. It does not appear on any statements, online or on paper. The payment allowcation policy is; the first part of the payment covers the 'minimum payment due', the balance of the payment goes toward the highest interest rate items(the purchases).
If you are not aware of this and not VERY CAREFUL with your account, the whole 'balance transfer' amount could be remaining after you have made monthly payments on the credit card. These offers can charge you interest on the whole transfer amount back to the original transfer date. BE VERY CAREFUL WITH THESE OFFERS.