Is it wise to move the balance of a higher interest rate credit card to another card at a lower rate? What are the pitfalls?
Cheryl from Fort Wayne, IN
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The big pit fall is the introductory rate is for a short time, usually 6 months or so, then your interest will go higher than what you have on your current card. Read the fine print carefully. Best bet is to call your current card holder and ask for a better rate. Try to negotiate a better rate. Be wary too, of buying anything else on the new credit card during the introductory interest-free period. If the interest-free period only applies to transferred balances, you could find yourself paying interest at the full whack on your new purchases.
Most card issuers put your new purchase debt at the back of the queue when allocating your monthly repayments thus ensuring they're the last debts to be paid. It means your purchase debt keeps growing at a high interest rate until your balance transfer is paid off, which rather defeats the object of switching!
I agree with Harry 100% on this and right now is also a bad time to be transferring balances or even attempting for a new card because of of the economy downturn. It could seriously affect your credit score by applying for new cards because most credit card issuers are on high alert right now being they are next in line for the same problems as the mortgage companies. Just stick with your current cards and request lower interest rates because of your good payment history. They want and need your good payments now more than ever and will most likely bend over backwards for you!
I have transferred balances for the short time and saved on interest. I have also transferred from a high interest loan at a bank to the credit card, and then transfered back to the bank line of credit when the credit card upped its rate. You really have to pay attention to what you are doing, if there are any transfer changes and so on. Get all the details.
The best bet is not to carry a balance. Pay off your credit cards in full each month. If you need a loan for something, get it from the bank.
Check out the cost of the transfer fee - usually 3%, though occasionally there will be no transfer fee. Calculate the 3% of your balance and check it against the interest charges you are paying every month. If the transfer fee amounts to $50 or $60 dollars a month on a high balance, the 3% might be cheaper in the long run.
Most companies offer the 0% for 6 months to a year. You can either keep your old card open or close the account. Sometimes this is good for your credit rating as long as you don't charge on either card for a while. Your ratio of debt to available credit is good when you owe only a small amount against a larger available credit.
The secret is in keeping control. If you don't think you can handle two cards, then you should cancel the one you just paid off. I have been paying no interest for quite some time now - almost a year and as soon as we get close to the end time of the 0% rate, I plan to keep an eye out for another company with 0% and transfer again.
One more comment; 'Do not' cancel accounts if you do choose to try for a new account and transfer your balance! Your 'credit score' is based on newly opened and all closed accounts! This could adversely affect future loan interest rates and even if you are seeking a new job!
It is sad and scary but our credit score is so very important now days :-( It would be better to keep the account you're transferring 'away from' and just make a minimal charge every three or four months and pay the entire balance when the bill arrives. It's complicated these days but don't be jumping around trying to save money because it could hurt you more in the long run with higher interest rates on possible future loans and even higher car insurance rate :-( Yes, even car insurance companies base your insurance on your credit score :-(
We have transferred balances a few times and just a few weeks ago did one.
First, Do NOT cancel your old cards. Second, if they increase your credit limit, this is a good thing. I'm speaking only in tearms of credit score. If your cards are close to the limit, your score will be lower. If you keep the exact same balace but your limit is higher, your score will go up. Also, closing accounts reduces your availabe credit and your score. Only cancel a card when there's a problem with the company or if they charge an annual fee.
Now, you have to be careful about balance transfers. There is usually an up front fee, often 3% and then you get some number of months at 0% or perhaps a low %. You've got to do the math. When you apply for a new card (after you determine it's a good deal) do not initiate your transfer until you have been approved, know your credit limit, and confirm that you did qualify for the special interest rate.
Another trick, some cards make you pay a 3% balance transfer fee with no minimum but a maximum of $50 or &75. If you make a bunch of small transfers, you'll end up paying more than one big one. I once got away with doing a transfer from one card for more than I owed. Once the refund check came in the mail, I used it to pay off all my smaller bills. Don't know if this would work every time but you could check.
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My husband and I filed for bankruptcy in 1995. Since then we have established good payment records with high interest credit card companies. I'm ready to drop them and transfer my balances to a lower interest rate card(s). When I start looking on the net, I see introductory rates for first time applicants with good credit. I'm having a hard time finding cards with the transfer option.
I've had my existing accounts for several years (or more), plus we just bought a house, so I think we deserve better interest rates. I called my accounts personally, but they don't offer better rates, only a larger line of credit. I have enough credit already.
--Penny
Answer:
Penny,
First of all Penny I'd like to say that I agree that you do deserve a better rate!
As you may know, bankruptcy stays on your credit report for 10 years. That means that all the banks know that you've had problems in the past, but that's long ago at this point, and I am sure there are banks that may be willing to give you a better deal.
The important issue now is how you've been handling your credit for the past few years. From what you've said my feeling is that you've been doing a good job with paying on time. That being my assumption it's time for the banks to give you a better deal or you should take your business elsewhere!
So you've already called your current banks and they won't budge on the rates. Try this, call them back and explain it this way, "I've just received a transfer offer in the mail for 1.9% and I'm going to take it if you don't reduce my rate. I've been happy dealing with your bank but it's just getting too costly. I'd be willing to stay a customer, but I need some type of reduction in my rate or I'll just have to take my business to another bank."
If the first rep you get on the phone cannot help you then ask to speak to a supervisor. If the supervisor says that they cannot lower the rate, then find out why and make it clear that they lost your business. WE MUST PUNISH THEM!!
Now, you mentioned that you have a few accounts. If the first bank won't lower the rate then call another account and transfer the balance from the first bank to this account. Tell the second bank, "If you give me a good deal on a balance transfer, right now, I'll do it." Well, at this point you should do it anyway.
As far as the online offers go, it can sometimes be very difficult to get those low rate deals when applying online. I suggest you try in your snail-mailbox. That's where I always get the best offers. Actually, the best offers are from my current banks but there are other good offers from new banks all time. Last year banks mailed 3 billion offers to us consumers!
Never forget that no matter what your situation YOU are the customer and they should be treating you with the philosophy of "the customer is always right." There's a lot of competition out there for our business so let's all make them work to keep us satisfied.
About The Author: Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter <http://www.debtsmart.com> Sign up today!
