Are you considering transferring your credit card debt to a “teaser rate” card (where a very low interest rate is charged on balance transfers for a specific amount of time)? If so, don’t just do themath—there are many other factors to
take into account before shifting your balances.
Negotiate with your current creditor
Why change if you don’t have to? Call your creditor’s customer service number and request an interest rate similar to the offer you are considering. No one wants to lose good business, so they may do what they can to keep you. Maintaining a relationship with the creditor you already have has its advantages: you don’t have to start again with a new company, nor monitor the date the deal ends. Also, bouncing debt around with too many transfers can negatively impact your credit score.
Assess your money management
Are you too busy for money management? Then balance transfers may not be your best option, however low the introductory rate. One late payment during the “teaser rate” period could cancel the special interest rate and make it increase dramatically.
Understand the terms
As with all contracts, make sure you are completely aware of the terms before you sign on the dotted line. Be aware of:
- Offers that only waive fees for “initial balance transfers.” Other transfers are treated as cash advances and subject to cash advance fees and immediate interest.
- Misleading offers. Not everyone who gets an offer qualifies for the super low rate.
- How long you must keep the account before being able to transfer again.
- The interest rate you’ll be charged for new purchases, which is often much higher than the balance transfer rate.
Avoid costly delays
Incomplete balance transfer paperwork can cause a serious delay, so make sure you fill in forms carefully. Continue to make the minimum payment on the old card while waiting for the balance transfer to take effect, which may take anywhere from two to four weeks if done by mail.
Don’t get into future debt
Transferring balances makes the most sense when you are not going to acquire more debt and will concentrate on repaying what you owe. If you keep the old credit card open and use it to accumulate more debt, the benefit of the reduced interest rate is watered down by a higher overall balance. But be aware, cancelling or suspending the old card might end up harming your credit score.
Article adapted from Balance Financial Education Workshops.