Top 5 Credit Card Balance Transfer Tips

You know the drill, go to the mailbox, grab the mail and go through the envelopes.  Out of the 6 pieces you received, 2 of them are offers for new credit cards, one is a bundle of coupons luring you to various local pizza shops and carpet cleaners, and Bam! 3 of them are offers to transfer your outstanding balances to a competing credit card and “PAY NO INTEREST UNTIL 2015″ or some other outlandish deal.

Don’t get me wrong, these deals sound great, and given the right circumstances they can actually be a very good deal.  But you need to read the fine print, do the proper analysis and calculations to figure out is it just great marketing or a great deal.

In a recent article from US News & World Report on Yahoo, they put together a list of the top 5 credit card balance transfer tips.  Here’s a rundown of their list:

  1. How long is the promotional period? This is where you really need to read the fine print.  Some card issuers have a very short “introductory” rate while others extend the period over a period of greater than one year.  After the promotional period is over you may end up paying significantly higher interest rates than you are currently
  2.  How much is the transfer fee? Almost all offers include some type of transfer fee.  In some instances it is a flat-fee and in others it is a percentage of the amount transferred, similar to getting a cash advance on the card.  Know how much this fee is from the get-go and include it in the cost over the life of the loan. It can add up fast and quickly turn a good deal into a bad one.
  3. What is your new credit limit? Whether you are opening a new card or transferring the balance to an existing card, you need to know how much of the available credit you are going to eat into.  Not only will it reduce your ability to spend more on the new card, if you use up too much of the available balance it could have a negative impact on your credit score. Leading us to our next tip…
  4. How will it impact your credit score. Not only do you have to take into account your balance to available credit ratio (for optimal results keep this ratio under 50%, and really closer to 30% both across the board and on each individual card), but you also have the question of whether to close the account you are transferring from.  Again, the ratios are important and you need to carefully consider whether keeping that old card alive, even without using it, is a better idea than closing it outright.  Of course, if willpower is not your strong suit, then consider just cutting up the old card or putting it in the freezer. But also be sure to consider whether there is a fee to keep the old card alive.
  5. What are the reasons for transferring your balances. This is one where you need to take a good long look in the mirror. If you are simply trying to free up a credit line to go and spend more money on it then transferring your balances is probably not the best idea (see point 4).

If used right, and with careful analysis a balance transfer can be a great option. But it has to be for the right reasons. Are you getting a lower interest rate? Do you plan on paying off the transferred amount within the promotional period? These are good reasons. If it’s simply, so that you can go and buy that new TV at Costco, well then it’s probably best for you to file those offers in the circular file cabinet better known as the trash can (just be sure to shred the offer first to protect yourself from identity theft).

Have you used a balance transfer before? Did it work out well, or did you get that TV? We’re all friends here, leave your comments below so we can all learn from each other.

Image By: Andres Rueda

About Anthony Candella

Anthony is the founder and Directing Attorney of YourCreditAttorney.com and has been helping consumers just like you understand and improve your credit and financial situation since 2003.