Don't overdo credit card balance transfers


A balance transfer, which allows a customer to shift high interest rate credit card debt to a lower-rate card, can help anyone looking to cut costs while paying off debt. But a repeated pattern of transferring from one balance transfer card to the another at each introductory rate's end can be a bad idea. The strategy will enable you to temporarily avoid paying interest, but has long-term hazards.

You may not be able to carry out a balance transfer strategy indefinitely. For one thing, there is a danger you could eventually stop being approved for balance transfer credit cards, which could leave you stuck holding debt at a much higher interest rate when the average percentage rate (APR) on your latest credit card jumps to its regular level.

Continually opening new low-interest credit card accounts and shifting money without attacking the overall debt could worry lenders, potentially hurting your chances for borrowing money in the future. Credit card issuers favour customers who pay interest, viewing customers who transfer debts over and over to avoid paying interest as less–than-ideal borrowers.

Excessive balance transferring can also make it hard to borrow money from other lenders outside of the credit card industry, such when shopping for a home or automobile.

Separately, any misstep -- such as a late payment -- can trigger your credit card's regular (higher) interest rate.

Another reason to be wary of performing too many balance transfers is that the low interest rate you get with a new balance transfer card may apply only to the transferred balance itself. It is important to note whether the low interest rate on balance transfers also applies to purchases.

Should you need to make a new purchase with the card, the interest on your spending could be at the regular interest rate. However, certain balance transfer credit cards offer low introductory APRs on both balance transfers and purchases.

Meanwhile, be aware that with a balance transfer credit card, all the payments you make will likely first be applied to the 0 percent portion of your debt. It's to a card company's benefit to let high-interest charges stay on the books, so they do. The high-rate purchase will continue to mount until the transfer balance is paid off.

However, all these warnings do not mean that a credit card balance transfer is always a bad idea. In fact, these cards can really work in your favour if used sparingly. So if you don't go overboard and remain mindful of fees and new purchases, transferring your balance to a lower interest card can be an excellent way to save money while paying down debt.

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Published: 8 July 2007