People often get deals in the mail regarding special rates for balance transfers. Often, though, people are unsure of whether or not they should accept these deals. On the surface, it seems like a good deal. However, there are times when it can actually cost you more to transfer your balance than it would be to leave your charges where they are. In theory balance transfers are beneficial and if you get the right deal, they can be great for your finances, saving you a lot of money on interest rates. However, many balance transfer deals include some costs that can put you in more of a financial bind than you were in. Here is what to look for to determine if it is good or bad:
- Is there a balance transfer fee? Many companies charge a fee for moving your balance to their card. This can be either a flat rate or a percentage based on the amount you are transferring. If they also offer a low or no interest deal in conjunction with this, you will need to do the math to see if it will be lucrative or not for you. Simply put, if the fees exceed what you will save then it is not a beneficial deal.
- Is there an account close fee? In order to save money the idea is that you move your money to the new card at a lower interest rate and you close your existing account. However, if your credit card company charges a termination fee, you may not be saving any money. Read the fine print to make sure you do not have to pay anything to close your account.
- How long is the interest rate good for? Specials often have an expiration date. For example, you may get zero interest rate but this is only good for three months. If you do not pay off your transferred balance in three months then the interest rate increases to a higher amount. Sometimes this amount is greater than your original. This can be a good move if you are able to pay off the balance in the time allotted but can cost you money if you can not.
- What are the rates for additional purchases? While you may have a great interest rate for your transferred balance, does this apply also to new purchases? Often times it does not and you are assessed a much higher interest rate on any new purchases. So, if you intend to use the new card because you think it is cheaper, you may want to rethink this. Make sure you understand what fees are assessed after the balance transfer occurs.
- Is there payment allocation? Some credit card companies will pay off the amounts that accrue the least amount each month regardless of when they were purchased. This leaves the most expensive rates open and accumulating interest. This will also mean it will take longer to pay off those amounts.
When you are trying to decide whether or not to move your balance to another card it is vitally important to understand what is involved. Many people choose not to read the fine print that comes with a new card. However, in balance transfer cases, this is imperative. Often the highlighted terms for the offer are not the only consideration and there are a lot of hidden fees that may not make transferring beneficial. Read carefully to fully understand what you may be getting into before deciding if it is a good financial move to transfer your balance.
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