Saving Money with Balance Transfer Credit Cards

Now that most post-holiday credit card bills have arrived, you may be wondering how best to deal with unpleasantly large amounts of new high interest credit card debt. According to a Consumer Reports survey, 13.6 million Americans were still paying for 2009's holiday gifts at the start of the 2010 holiday season. If you want to avoid joining the ranks of the perpetually indebted, a 0% balance transfer can play a large role in reducing your interest expenses and getting you out of credit card debt faster.

If you are unfamiliar with these transactions, balance transfers work by allowing you to transfer debt from your current, high rate cards to a new card with a low or 0% promotional rate than can last anywhere from six months to two years. Credit card companies offer these deals to lure in new customers with the hope that they will continue using that card once the promotional period expires and the regular interest rate kicks in. However, smart consumers use these offers to stop interest from adding up and speed up the process of paying off debt.

Like all credit card offers, balance transfer deals can be a little tricky. Here are some tips from Jeff Weber, editor of www.smartbalancetransfers.com, that can help you avoid pitfalls and maximize your savings with balance transfers.

1. Avoid any offer with the words "up to." Some credit card companies advertise 0% interest rates that can last "up to 18 months." In the fine print of these deals, you will find that only some applicants get the longest advertised rates. Others may be approved and only offered a low rate for as little as six months.
2. Pay attention to balance transfer fees. Nearly all 0% balance transfer offers carry balance transfer fees that range from three to five percent of the balances you transfer. A good balance transfer offer will last at least 12 months and carry a fee no greater than three percent. Avoid offers that carry higher fees unless they come with significantly longer introductory periods.
3. Don't transfer balances to a card you currently have high interest debt on. If you get an offer in the mail to transfer balances onto a card that already has a balance, toss it in the garbage. Credit card companies can use every penny of your minimum payment to reduce the portion of your debt with the lowest interest rate. For example, if you have a balance being charged a 15% rate and a balance being charged 0%, a good part of your payment will go towards reducing your 0% debt, while your high interest debt continues to grow.
4. Have a plan to get out of credit card debt. Transferring high interest credit card debt to a 0% APR card will save you money on interest, but if you don't actively focus on paying off your balances, you'll find yourself stuck with high interest debt again once the 0% promotional period ends. While it may not be possible to pay your card off entirely, use your balance transfer period to aggressively pay down as much of your debt as possible.
5. Understand that a balance transfer may not be your best option. Balance transfers can be extremely helpful for people who need some assistance getting out of debt. However, if you can barely afford to make your minimum monthly payments, a balance transfer isn't going to solve your problems. Contact your credit card companies and see if they are willing to reduce your interest rates. The worst they can say is no.

If that doesn't work, consider seeking out a non-profit credit counselor via a website like www.nfcc.org that will work with you and your credit card companies to create a manageable repayment plan. This approach is not as easy as filling out a simple credit card application form, but it could be the easiest way to eventually become debt free.

References and Resources

http://blogs.consumerreports.org/money/2010/11/consumer-debt-keeps-falling.html
http://www.smartbalancetransfers.com
http://www.nfcc.org