Credit Card Balance Transfer

If you're like most folks, chances are you get several credit card balance transfer offers a week. Oftentimes these come from credit cards you already hold, offering you significantly reduced interest rates (often at 0%!!) if you transfer a balance from another card. And, if you're like most folks in these scary financial times, you're looking at your expenses through a magnifying glass and becoming more acquainted with your credit card interest rates than you ever wanted.

All this is good. You should have a good general knowledge at any point in time of the interest you're currently paying. And you should examine the offers you receive, simply because sooner or later you'll probably receive one which makes good sense.

If you read no further, please read this: A credit card balance transfer works best in your favor if the transfer is made to a new card or a card you hold with no current balance. Why? Because the balance you transfer gets paid off first. Here's an example:

Let's say you hold Credit Card A with a $3,500 balance at 15% interest and Credit Card B with a $1,000 balance at 18% interest. You receive an offer from the Credit Card A for a balance transfer at 0%. Sounds like you should transfer Card B's $1,000 (currently costing you 18%) to Card A, right?

What you need to keep in mind: Once you make the balance transfer, any monthly payments you make to Credit Card A will first be applied toward your balance transfer amount. This means that the $1,000 you transferred will be paid off sooner, and the $3,500 balance you started out with will languish, costing you 15% without being paid off at all, for however long it takes you to pay off the $1,000 you transferred. Your balance transfer just increased the amount of time it'll take you to pay off the initial balance you carried.

Of course there are other factors to consider: Whether you pay greater than your minimum amount due each month, whether the amount saved in interest by a transfer exceeds the amount of additional interest you may pay with an existing balance, etc. Credit card balance transfers can be a very, very good thing if done wisely. Just remember two things:

Remember to do your basic math: Make sure you come out in a better financial position because of your actions;

Remember that credit card companies are in the business of making money. They're not your mama or your daddy and they're not in the business of doing you a favor; it's not their job to look after your financial well-being. The one best suited to do that is the one whom it most affects, and that one is you.

Source: Associated Content