Balance Transfer Credit Cards: Friend or Foe?

Balance transfer credit cards permit you to move a credit card balance from one lender to the balance transfer card lender. This may be a good idea during a promotion period, where the receiving card offers a discounted interest rate on balance transfers, a popular marketing tool to generate new business. However, there are a few things to keep in mind, since credit card providers don’t offer balance transfers because they have a good heart. They’re in it to make money, and the money they have their eyes on is yours.

Balance Transfers as a Business Builder

Credit card providers don’t make much money from clients who pay their bills monthly. Their card’s annual fee – if there is one – would be the only revenue they derive from the card holder. Card issuers count on income from interest due from unpaid balances. What better source of new – and profitable – business than customers who already have a balance? So that initial great interest rate may be a big help in lowering your monthly payments, but watch out for…

The Fine Print

Balance transfers may not be free. There’s often a percentage charged on the amount of the balance, typically around 3 to 5 percent. While zero percent offers are out there, they may be time-limited. Speaking of time limits, that great interest rate is most likely attached to a time frame as well. If you don’t pay off the balance transferred in that time frame, you’ll start paying the card’s regular interest on any remaining amount. If you transfer from a card charging 10 percent to a card that charges 12 percent after the balance transfer offer expires, you’re paying more that before, if you don’t clear that balance.

What to Watch For

If you’ve got a department store card, for example, with a very high interest rate, transferring a balance to a conventional credit card may be a very good idea. Even transfers between conventional cards can make sense, if you look at all that fine print and commit to paying off older balances. Eliminating credit card debt is the best financial gift you can give yourself.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.

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