Transferring Credit Card Balances? Be Careful!

You can probably tell by my previous posts that I’m dead set against using credit cards…even if you pay off the monthly balance every month. Understandably, lots of people have credit card debt and want to get out. Sometimes they use the strategy of balance transfers to new cards as a tool. It seems more like a shell game to me, but at least it’s effort.

Credit card companies are aware of this, and they have developed promotions to use the balance transfer strategy to their advantage–to try to get you to transfer your business to them. Here are a few simple tactics (I hesitate to call them tricks) the credit card companies use and that you should be aware of before you transfer your balance.

1. Lower interest rate, but annual fees
Pay attention to any offers or advertisements you see hyping 0% interest. This card could have a fee associated with it that will end up costing you some real money if you aren’t carefuly, especially if you end up keeping the card for several years.

2. Minimum amounts on transfers
Again, time is on the card company’s side here. They will offer a low rate for an introductory period, but you’ll have a sizeable balance after that period, and that’s when they’ll get you with a higher rate. Be aware of the rate they will charge after the introductory period.

3. Late Payment=contract violation
Many people may not be aware that a payment that is even a day late is a violation of their contract with their card company. Card companies count on these late payments to take away the low introductory rate and increase the rate because of this violation.
4. Lower rate, but only on transfers
Credit card companies want their card in the hands of proven users. If you are transferring balances, they know that you use your cards. They are willing to give you a low (or even no) interest on your transferred balances so that they can charge you a higher interest rate on your new purchases. Be aware that any payments you make on the new card will probably go toward the lower rate balance until it is paid off, meanwhile your new purchase balance is piling up every month–WITH INTEREST!

After considering all of these factors, you may decide you are better off just calling up your current credit card company and negotiating a lower rate. These guys are competing heavily for your business, and the cheapest business for them to get is the business they already have. They’ll more than likely be willing to drop your rate just to keep you with them.

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