"Simply fill out these checks to pay off your loans, bills and other higher-rate credit card accounts. Or use them to improve your home, take a dream vacation, or ..."
Peaks your interest, doesn't it?
Odds are you've received credit card offers that read much like this. (You might just find one in the mail today.) Lately it seems as if credit card companies are tripping over each other to give you the best rates on credit cards and balance transfer offers. What gives?
The key word in these offers is "introductory." Banks offer you a great rate for new purchases and/or balance transfers for a few months, then move that rate back up hoping you'll let your debt ride with the higher rate.
Trash or Treasure?
If you're like many you throw offers like these in the junk mail pile. Scott Bilker, author of "Talk Your Way Out of Credit Card Debt" and founder of DebtSmart.com, says this might be a mistake.
"People don't want to be bothered with transferring their balances, but if it takes you 10 hours over the course of a year to save $1,000 by doing transfers, that's $100-per-hour for your time."
If you carry a lot of debt, it just makes sense to try to find a way to lessen your finance charges.
Curtis Arnold, Founder and Public Relations Director of CardRatings.com, agrees. "Transferring balances from one card to another to take advantage of low introductory rates can result in significant interest savings, as does financing purchases with low introductory purchase rates… there are currently several balance transfer offers available touting a 0% interest for one year."
A Few Pointers to Success
So great! You'll take that offer and save money by paying lower interest on your debt. What could possibly go wrong?
Well, if you don't proceed with caution and a little wisdom, you could wind up paying more in interest charges than you bargained for.
It takes a little work, but with some organization you can make introductory offers work for you instead of letting the credit card companies reap all the benefits. A few tips on making the best of these offers.
1. Don't Skip the Fine Print. Marketing departments make it their business to make the most enticing details of an offer jump out at you – distracting your attention away from less attractive parts of the offer that are usually listed in the fine print. Educate yourself about all the terms before signing on. If the fine print seems too daunting to comb through, give the bank a call and ask about the terms.
What should you look for? We're talking about offers that have low-interest introductory periods. Find out what the introductory rate is, how long it lasts, if the rate increases after the intro period and if so, what is it? Is there a fee for a balance transfer?
Find out if new purchases have a different rate than the balance transfer – they often do. If so, you shouldn't use that card for new purchases, as your payments will apply first to the lower interest debt. This leaves debt at the higher rate to accumulate more finance charges, reducing your potential savings.
Sometimes these offers require you to make one or two purchases each month, but there is usually no minimum purchase amount so you can still make the offer work in your favor by buying very low priced items – like a pack of gum.
2. Do the Math. "To make the most of your money, you have to do the math," says Bilker. "A six-month rate of 3.99% with a balance transfer fee of 4% (no ceiling) is really 11.99% (3.99 + (2 x 4))! In this case, you'll want to use the offer to transfer balances with rates that are greater than 11.99%."
Place any fees and charges into your equation. There are many credit calculators available online to help you with the math. If the numbers show that you won't benefit (save much money), than it's probably not worth the effort.
3. Comparison Shop. When you get an offer in the mail, write down the fee and rate information and then go shopping. Says Bilker, "There are many banks that want your business and are willing to give you good rates and terms. You just need to start looking for these credit options."
Many introductory offers are only made by mail, so don't be so quick to trash those envelopes that are obviously credit card offers. There are some gems; including offers that have no expiration date—meaning that the offer remains in effect until you pay the balance in full.
A note about balance transfer fees: Paying a nominal fee for a balance transfer may be a good financial decision if it will result in interest savings, however, try to avoid fees if possible. If you're considering an offer with fees, sometimes the bank will eliminate or reduce the fees if you call and ask. If not, refer to Tip #2 and make sure that the math works in your favor.
4. Track your Money. Be aware of your money output. Bilker says consumers make a "major mistake by not tracking when a low-rate offer ends, and letting their debt ride to a higher interest rate." Know which cards hold which rates, and when dealing with introductory offers, mark your calendar with the offer beginning and ending dates. Then you can guard against a higher interest rate by either paying off your debt before the intro period ends or by transferring the balance again.
Which leads to a good question: how does all this balance transferring affect your credit rating? Viewpoints on this vary from "risky" because of all the open credit accounts, to "it really doesn't." The general consensus among many experts, though, is that taking advantage of balance transfer offers will not adversely affect your credit rating as long as you do not do so excessively. In fact, Scott Bilker maintains that balance transferring can actually help your credit rating!
And last, but certainly the most important:
5. NEVER make a late payment. Never! Not only will this affect your overall credit history, but one late payment can raise your low-interest rate to exorbitant levels—before the introductory period ends! (By the way, that little detail was included in the fine print that you should have read when you signed up for the card. Remember Rule #1?)
So don't be afraid to give low-interest rate offers a second look. Just remember that it takes some organization and discipline to reap the greatest benefits.
Please visit our Card Reports section to review our current ratings of various balance transfer credit card offers.
Rebecca Lindsey is a Senior Staff Writer for CardRatings.com. She began writing articles about consumer credit issues for CardRatings.com in September 2000. Her articles have been republished and/or referenced by leading publications throughout the country, including Live Well on Less Than You Think: The New York Times Guide to Achieving Your Financial Freedom by Fred Brock.
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