Transferring
a high-interest balance to a card
with a low rate can save a bundle
of cash and speed up your path to
debt freedom. But, be careful. The
rules are different for each card.
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5 balance transfer trip-ups |
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1. Check
the time limit carefully.
Most offers last only six or nine months, then
revert to a more traditional rate, usually around 16 percent. If it's not
clear what rate the card will eventually charge, call and ask. Use this work
sheet to keep track of what the companies tell you.
2. Know
what the zero or low interest really covers.
Many
cards charge the low rate only for balances transferred from other cards. Sounds
like a good deal. And it is -- if you remember that new purchases on these types
of cards will be charged at a higher interest rate. What's more, the credit card
company will apply all of your payments to the zero or low-rate balances first,
until they are paid off. That means your new purchases will continue to revolve
on the card and rack up interest costs. Of course, if you know that's how it works,
you simply never use the card for new purchases. Instead use it as a smart way
to lower the cost of your outstanding debt.
Other
cards work the opposite way, applying the zero or low interest only to new purchases.
If you don't realize this you can end up paying full interest on your existing
debt plus the transfer fee. Best to avoid balance transfers on these cards, says
Jane Bryant Quinn, personal finance expert and author of "Smart and Simple Financial
Strategies for Busy People."
3. Beware
of hefty fees.
Most cards charge
a certain percentage when you transfer a balance from another card, usually
about 4 percent, with a cap of $25 or $50. But, says Bill Driscoll, a financial
planner in Plymouth, Mass., more and more cards are eliminating the cap. So,
if you transfer, say, $5,000, you'll pay a $200 fee. Worse, some cards count
the fee as a new purchase and charge the higher rate on that part of your
balance. You want to only consider cards that have a cap on their transfer
fees.
4. Watch
out for bait-and-switch.
Just because you applied for zero percent doesn't mean you'll get it. Credit card companies
will sometimes issue you the card but assign a higher rate if your credit
score is low. Most people don't realize this has happened until they get their
first statements. Be sure to read the agreement of terms that comes with your
card carefully before you transfer a balance or make a purchase.
5. Always
pay on time.
That zero rate will disappear the minute you're late. You'll end up paying the
full rate that the card converts to immediately. Another late payment and your
rate might be bumped as high as 30 percent.
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Do you have a secret to success with credit cards?
Or, are you struggling? . |
-- Posted: Feb. 20, 2007 |
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