The Pros and Cons of Credit Card Balance Transfers

Credit card balance transfers can save you a lot of money if you consolidate your debts from other credit cards with high balances.

If used wisely, low interest credit card balance transfers can be an excellent way to reduce your interest payments. If used poorly, a balance transfer could cost you even more in interest and fees.

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As always, you need to read the fine print in any balance transfer agreement before you sign the dotted line. There are a number of things you need to look out for.

The first thing you need to look for is the length of time the low interest rate on your transfer will be upheld. Some of the best offer the same low interest rate on the transferred balance for the life of the balance. Other cards will offer a low rate for a set period of time and then revert to the credit card's regular interest rate if the transferred balance is not paid off in full before the interest rate change. If you've transferred a large balance and don't pay it off in time you could wind up paying even larger interest payments than before you transferred the balance.

You also need to find out if you'll be charged a fee for a balance transfer. The fee could either be a flat sum or percentage of the debt you plan to consolidate. If you have time to shop around you may be able to find a credit card that offers free balance transfers.

The last thing you'll want to look for is a listing of the penalties for late or missed payments. Some companies will immediately cancel your low interest rate, jack up your rates as high as 20+ percent and charge you a hefty late fee if your payment is even minutes late getting to the payment processing center. If the credit card you want to transfer a balance onto has a "universal default" clause your interest rate could increase drastically if you are late paying any bill whatsoever. Pay your electric bill late and your interest rate could skyrocket!

As long as you make all your required payments on time you don't have to worry about the penalties for a late or missed payment. Being aware of the penalties should provide all the encouragement you'll ever need to try to pay all your bills on time.

You also need to keep in mind that any additional balance or purchases you make with the credit card will be paid for after your low balance transfer is paid off. If you have a ,000 transfer with a 2.9 percent interest rate and spend an additional ,000 in purchases on your credit card at a 12.9 percent rate, your balance transfer will be paid off first. Rack up too many additional purchases and you won't be saving as much money in interest as you originally anticipated.

A credit card balance transfer could be an excellent idea or a very bad idea depending on your circumstances and how long it may take you to pay off the transfer. Only careful planning and a full understanding of the potential pros and cons will help you maximize the usefulness of a balance transfer.

The Pros and Cons of Credit Card Balance Transfers