3 Pitfalls of Balance Transfer Credit Cards

If you've got the choice of paying interest or not paying interest, it seems the choice is obvious: don't pay the interest! That's the promise that balance transfer credit cards make. But do they deliver? That depends on how you handle them.

Balance transfer credit cards are designed for card holders who want to transfer a balance from another card. The idea is that high-interest balances can be switched to a low- or no-interest card, making it easier for the card holder to pay them off.

But it's not always that simple. Some cards come with hidden fees and stiff penalties. Plus, once the low-interest phase has expired, the interest rate might jump higher than the rates on previous cards. To keep costly interest at bay, here are three mistakes you should avoid when using a balance transfer credit card.

Mistake #1: Don't read the fine print.

Every credit card sounds like a good deal when it's being marketed to you. The terms might appear less impressive when you read the cardholder agreement for yourself. Always trust the written word over a silver-tongued sales pitch. Otherwise, you might find that hidden fees sink the value of your chosen card. Pay close attention to balance transfer fees, since these will apply every time you transfer a balance to the new card.

Mistake #2: Don't make payments on time.

Many balance transfer cards require you to make timely payments. If you don't, your purchases will be subject to interest. Worse, that interest will qualify as penalty interest, and could be as high as 30%! To take advantage of the entire 0% interest period, make your payments in full and on time.

Mistake #3: Don't pay off your balance within the designated timeframe.

If you sign up for a balance transfer card that offers 0% interest for one year, be sure you can pay off your transferred balance within that year. It won't benefit you to let your balance linger until the card issuer starts applying interest to it. You could even find yourself paying a higher interest rate than you were paying previously. Knock out your balance within the given time period, and you'll be able to apply all of your payments to the principle rather than the interest.

When used correctly, balance transfer cards can help you whittle away your debt by removing interest from the equation. Use them poorly, however, and you'll do away with any benefit you might have received from such cards.