Balance Transfer Cards: The four rules of Balance Transfer Cards.

By | March 17, 2008

Balance transfer cards can be a great tool for paying down debt if you choose carefully and know exactly what you’re getting. Many have 0% or very low interest rates, much less than conventional credit cards. And used properly these cards can help borrowers pay off their credit card debt much quicker…

Pay Off the Balance!

Most issuers will only extend these rates to borrowers with good credit. You can help pay down your debt with such cards as long as you change your spending habits! Pay off the balance; don’t add to it by racking up the debt on the cards that are now paid off. A balance transfer card should not be used like a regular credit card; many issuers will not extend the zero or low rates to new purchases using the card.

Read the Fine Print

Pay attention to the introductory rate, when it expires and what the interest rate will be at the end of that period. Is there a fee to transfer the balance from your high-interest card or an annual fee? Some transfer fees are as high as 4%, which would cost you $400 on a $10,000 balance. Some cards offer a zero or very low teaser rate but increase it to nearly as much as the card you’ve transferred from! The initial no or low interest rate usually lasts from six to twelve months. If you can pay down that debt as much as possible during that time, you’ll see significant savings when the higher interest kicks in.

Zero-Tolerance: Can you pay late?

Many balance transfer cards have a zero-tolerance policy. If you’re late with a payment or skip one altogether, the agreement between you and the issuer is void and much high rates kick in. If the issuer does allow late payments be sure to know the fees and any increased interest charges you might have to pay.

So Shop Around

Be sure to shop around for a balance transfer card the same way you would any other product. A 0% interest rate for 6 months then 9% after that will cost you more in the long run than a card that starts out then maintains an interest rate of 4-6% unless you pay the entire balance during the life of the introductory rate.

Balance transfer cards can be a real help in paying down debt as long you know exactly what you’re getting into. Remember, always read the fine print!

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