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Is balance transfer right for you?

By Judy Martel · Bankrate.com
Friday, October 12, 2012
Posted: 2 pm ET

There's one main reason why credit card companies send you offers to transfer a balance: They're betting you won't pay it off.

Issuers are constantly searching for customers who will make them money, explains John Ulzheimer, president of consumer education at SmartCredit.com.

"Someone who has a large balance that's not in default is a very profitable customer because they're paying the largest of all fees: interest," Ulzheimer says. "That's the primary reason credit card issuers offer such attractive balance-transfer deals."

Credit card companies want your business so badly that many will charge no interest for six months to a year, or even longer.

The expectation from credit card companies is that those balance transfers will go unpaid longer than you expect. It's a strong bet on their part: If you've racked up balances in the past, you'll likely continue the practice on their card. Then you'll eventually get snared in high interest payments again.

Still, there are some opportunities here if you're smart with your money. Balance transfers can be a good strategy for managing debt by saving interest payments in the short term and preventing default, Ulzheimer says. Just make sure you're transferring to a card with the best deal and that you're working aggressively to pay down the debt.

Also, beware of unexpected interest charges. "Interest could be applied retroactively, so even if you're close to paying off the balance you may be nailed with interest going back to the transfer date," Ulzheimer says.

That's most often the case with retailer credit cards, Bankrate's credit card analyst Janna Herron explains in her column. If you haven't paid off the card, you could be hit with retroactive interest on the entire balance.

Consumers will also have to watch for transfer fees, which could be 3 percent to 4 percent of the balance being transferred. Shop for a deal with the longest no-interest period and no transfer fees.

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