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Balance transfer credit cards — Lifesaver, if used right
card offer that allows you to move the debt incurred on any existing card to a new card. When you do, sometimes simply by checking 'Yes' on an application, that debt appears on the new one. But as with any financial application, read the fine print. TWICE! Fixed period balance transfer offers allow you to move debt to a new card, but sometimes cap the amount. In addition, as the name implies, you have a limited time to pay off that amount before the low rate changes to the bank's normal APR. Since that means going from 0% to 15-20% on any unpaid balance, you can easily wind up with a large, unexpected interest charge. Normal 'fixed period' intervals range from 3-9 months, with 6 months as the average. One year periods can be found if you shop around. A long term balance transfer credit card offers an indefinite payoff period. You can take as long as you like to pay off any transferred amount. But the interest difference between zero and 7% on debt of a few thousand dollars is substantial. The exact amount depends on whether you pay the minimum monthly due or more. Obviously, the faster you pay off the balance the fewer interest dollars are added to the total. An easy way to do the calculation is to obtain a mortgage calculator, either physical or software over the Internet. The mathematics is exactly the same, just be sure to change the period from the typical 30 years to your intended pay off period. In addition to moving credit card debt there are other ways to use a balance transfer card. It's sometimes possible to transfer other kinds of high interest debt, such as auto or furniture loans, to the card. Be careful though, since (for fixed period) you have to pay off the amount within a few months. Transferring a large amount from, say a 10% auto loan, can cost you more money if you don't pay it off within the allotted time. For those interested in squeezing every dime out of money management, it's possible to take a cash advance on a credit card, and put the money in a savings account or even stocks. That can carry great risk, though, and you have to be very careful to time when to 'pay back' what is in essence a loan. Also, there are almost always cash advance fees (currently around 2%) for drawing currency from a credit card. Considering what savings accounts pay, that could easily wipe out any profit. Bouncing from one 'balance transfer' card to another every six months, in order to keep rolling debt over, is recommended only for the truly motivated. As with any credit card, make sure you understand the terms. Look for 'no annual charge' cards and low rates (both initial and long term), and check for any hidden transfer fee. And don't forget that moving debt from one card to another often takes two weeks or more. Time the transfer carefully to avoid interest charges or late fees on both ends.
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