You've seen them over and over. Until the credit crunch of 2008 brought the credit market to a standstill, the average consumer was finding their mailbox filled with credit card offers. 0% APR was the bold print on the outside of the envelope. The advertisements were telling us that if we transferred our balances from our old credit cards, we would pay no interest for 6 months or a year or even longer.
These offers are sure to return in some form in the future so let's take a look at balance transfers and why they may not be the best idea for you. Knowing this information now will prepare us for the day when these envelopes start showing up in our mailboxes again.
You may have taken advantage of one of these enticing offers. Joan did. She wrote to my website and asked this question: "I have a credit card balance of approximately $5,000. I have great credit and received an offer to transfer my balance to another card for an interest rate much lower than my current card. Is this too good to be true?"
Joan's question is a question that most of us have asked about balance transfers. First, if you have excellent credit and you foresee paying you debt in full within a short amount of time, one balance transfer to a card that has terms and conditions similar to your current card may be just fine but we have to look at the offer on the new card without looking at the introductory rate.
In a certain amount of time, 6 months or 1 year normally, that introductory rate will run out and you will be left with a new set of terms and conditions so what will your interest rate be at this time next year? Is it 1% for 6 months and then 20% after that? That's not a good deal for somebody will great credit.
Is there an annual fee? If so, what is it? The implication here is that you will go through the hassle of applying for your new card, transferring the balance and hoping it all goes smoothly, save some money on interest and then give your savings back in an annual fee. It's not worth the time and effort on your part to do all of that work just to break even.
Did you know that you should try to minimize how many times your credit file is accessed? Bouncing from credit card to credit card doing balance transfers probably isn't a good idea because it is looked down upon when you are constantly applying for credit. That's a red flag in the minds of real lenders whom you might visit for a home or car loan or student loan.
Finally, there is no substitute for simply getting those bills paid off to get the specter of debt off of your back. Some people work so hard to get the best deal that they forget about the simple fact that there balance is doing nothing but getting larger while they're applying for card after card. As most of us will attest, dealing with customer service departments can take up valuable time in your day and often, it involves taking a day off of work when those larger scale problems arise. Stories abound about those who do balance transfers every 6 months to avoid paying interest on their debt. Something inevitably goes wrong and time has to be spent trying to get it resolved. Avoid problems like this by going without some wants for a while and paying off those credit cards. Your family and your sanity will certainly thank you in the end.
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