Credit Card Balance Transfers - Negotiating the Minefields

Pretty much anyone who has ever been in debt is familiar with debt juggling, where the debt from one credit card gets transferred to another, with lower or no interest. This practice postpones the need to pay and, under ideal conditions, allows to save a few bucks here and there as well. College students are especially adept at this. The only thing that is easier to get on a college campus than a new credit card is a flyer to a frat party. Sometimes students get a new credit card not to have an extra piece of plastic in their wallet or purse, but for the goodies supplied as a signup bonus - caps, T-shirts, coffee cups, pens, towels, and the like. But it doesn't hurt that one's purchasing power increases in the process as well, even if only by $500 or so.

Balance transfer is still widely promoted by practically every credit card-issuing company, but debt juggling is no longer a free ride that it used to be. All major financing institutions now charge you 15% of the balance you are transferring - up to $99 - to use their balance transfer option. This means that doing so becomes feasible only if you are transferring a large amount. There is really no sense in transferring $300 from one card to another if, as a result, you are ending up with a balance of $345. On the other hand, if you're transferring $3,000 that is currently under 18.9% interest to a card where it will accrue only 5.9% interest, your savings will compensate for the $99 balance transfer fee in less than three month. And if you're transferring to a special-promotion card, where you will pay no interest for a certain period of time, this fee will be recouped in less than two months - or even right away if the amount of your transfer is higher.

This is only one in a series of advices I would like to offer to you on the subject of benefiting the most from balance transfers and not being taken for a ride. All the points you will read below are from personal experience. I am not a financing professional of any type, nor do I belong to any organized consumer advocacy group. This is strictly sharing my hard-earned experience for the benefit of the larger community.

Scare Them into a Deal - unless you are a complete deadbeat when it comes to paying your credit card bills, your credit card company doesn't want to lose you and will go to considerable lengths to keep you. Call them and tell them you want to close your account. When asked for a reason, tell them you can no longer afford to pay such high interest charges and you have found a better deal. (Note: Actually go and do find a better deal before doing this. Some companies might call your bluff.) Usually, the customer service representative will transfer you to someone in the "cancellation" department, whose main job is not to cancel your account but to offer you something that would entice you to stay. One of the more common options is lowering your interest rate on the existing balance for a specific amount of time (anywhere from three months to a year). If you figure this is the best you can get anywhere - take them up on it. At least you'll get some financial reprieve for a few months.

Choose Your Deal - gather account application brochures or go online and research which cards are offering the best introductory balance transfer rates. Apply for those and make sure to indicate that you're planning to transfer balances to that card if approved. A credit card company will salivate at the thought of you carrying a balance as soon as your card is activated, and your chances of actually getting this card increases. Another route to take is to call the company with which you already have a card and ask if they have any special promotions for balance transfers. Eight times out of ten, they will, and you will be able to take advantage of them.

Monitor Your Account - once the balance transfer is complete, watch this account like a hawk. One of the contractual stipulations when it comes to promotional balance transfers is that, if you miss a payment or even are late on it, the promotional rate no longer applies, and your balance is relegated to the category of cash advances - the one being charged the largest interest rate. It is very easy after a few months for a credit card company to generate your statement but "forget" to mail it. You never get your monthly statement and are feeling pretty good about some extra money in your bank account. Next thing you know, the next month's statement arrives, carrying a late fee and a finance charge, and your promotional interest rate is gone. And it is your word against theirs that you've never received a statement. They will send you a copy of your statement for the previous month, claiming that they sent it on time.

To avoid this, ask your credit company to send you e-mail notifications of monthly statements being generated, along with the paper statement. Mark your calendar with a date you usually receive your statement and call the company the same day if nothing arrives in the mail from them. Another option is to go online and request a statement or even to pay your bill online right away. Remember - keeping your payments on time is your responsibility, not the credit card company's.

Minimize the Damage - if the worst happened, and you lost the promotional interest rate on your balance, try to make it so you end up paying as little extra as possible. Ask them to waive a late fee if you pay your outstanding bill right away, over the phone. This usually requires a $15 telephone processing fee, but it is better than the $39 late payment fee already on your account.

The next step is to try to pay off the balance that is being charged the high interest rate, even if by transferring the money out onto a different card. If you are successful in doing so, call the credit card company and get them go on record to assure you that once you pay your balance in full, no additional finance charges will accrue. Get the name of the customer service rep and write down the time of your call. If possible, ask to speak to a supervisor. Ask them to put a note in your file regarding your request and ask for the note number. Write it down as well. This way they won't be able to sock you with the interest on the "revolving balance" - meaning the average monthly balance on your card, which is determined by a complicated formula but comes down to the fact that if you carried a balance even for just one day out of the month, you can be charged interest on it.

If you decide (or have no choice but) to keep the balance on this card, ask the customer service rep what you need to do to ensure that the money you pay every month goes to repay the balance with the highest interest rate. Usually, they will ask you to include a note into the envelope with your payment, on which you specify exactly how much money you want applied to each category - purchases, cash advances, promotional offers, and the like. If you don't do it, the credit card company will distribute the money itself - which means, of course, that the cash advance category will receive the smallest payment possible, so it can continue accumulating its high interest rate.

Look for a Way Out - if things get really unbearable, it is better to have your credit history take a hit than living destitute year after year. Instead of filing for bankruptcy, though, sign up with one of the debt reduction negotiation services. There are plenty of those out there, but my advice - again, from personal experience - is to sign up with an actual legal services firm, not a non-profit organization. It might cost you a bit extra, but you won't have to deal with creditors or collection agencies at all in regards to accounts you place with them.

A word of warning: you must be financially prepared to go this route. While on the program, you won't be able to open any new credit cards. If you feel you can't survive without credit, don't put all your cards into debt reduction negotiation. Leave one for personal use, but do your best to pay off the balance on it every month.

Using the debt reduction negotiation service instead of bankruptcy reduces negative influence on your credit history from ten years to seven. Its intangible advantages - like not facing the embarrassment of the bankruptcy court - are even higher.