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Credit Card Balance Transfers

credit card, balance, transfer, interest, rate

Credit Card Balance Transfers
Checking the mailbox has become a daily chore, full or relatively useless coupons and offers from credit card companies to transfer my balance with my current card to their low rate offer. Do I immediately go online and start filling in all of the blanks to transfer my balance? Not without doing my homework first!

If I’m receiving a pre-approval and have questions to ask before I submit my application, you better believe I am going to call the phone number for customer care and ask those questions. If the same thing happens to you, these questions should be at the top of the list.

What is the balance transfer fee?
Is there a flat transfer fee like $100.00 or is it a percentage of the transfer amount? If the transfer fee is flat, make sure it is not more than the amount of interest you would pay with your current card. Resist the urge to transfer balances from card to card, as these fees will add up and you will not accomplish much. If the transfer fee is a percentage of the transfer, do the math to ensure the fee is not astronomical and again more than the anticipated interest. Sometimes you will find that if you pay a little extra on your current card you may get the balance paid faster and not need to transfer. Does the transfer fee get paid off with your first payment, or does it stay on the account and collect interest while your transferred amount is paid? Make absolutely sure your first payment is applied to any transfer fees so as not to accrue interest while you pay off the transferred balance, a waste of money. Most creditors will extend somewhat of a break here by limited the total transfer fee to a nominal amount such as $50.00 per transfer. Keep an eye on these fees while contemplating transfers to maximize your savings.

Credit Limits
Many creditors will send you a generic balance transfer pre-approval letter giving an amount like $10,000.00 with a (*) by it. What that symbol means is explained at the bottom of the page in very small print. Here’s what it means: Pre-approval is available up to the referenced amount but is not guaranteed. Once you send in the pre-approval acceptance, your credit is reviewed as well as your income which determines the credit limit you will be assigned. On the application you will often notice a place to submit information on your current accounts to transfer the balance to the new account as soon as it is opened. There is another (*) in this area of this application that explains the balance transfer will be completed when the account is opened to the extent of the credit limit you receive. For example, if you list an account with a $10,000.00 balance that you want to transfer over, but the limit on your new card is $2,000.00, the transfer will automatically take place for $2,000.00 less any fee amounts. You will still owe the remainder to the other card. You are now responsible for 2 accounts and payments. No matter how excellent you think your credit is, it is in your best interest to wait on balance transfers until you know you have been approved and for how much. If the creditor offered you the account with a transfer option, chances are it will still be available after you get approved for the card.

Go-to Rate
Like all good things balance transfer promotion offers usually come to an end. The important question to ask before mobbing thousands of dollars to another creditor is, “What will my rate be when the promotional rate expires?” If the transfer is not paid off by the promotion’s end, a new rate will usually apply. If that rate is not reasonable, it will not e worth your time to transfer larger balances. The “go-to” rate can be either fixed or variable. If the rate is variable it will change monthly if the prime rate changes. The Federal Reserve issues the prime rate at the end of each month and it has been on the rise lately from 4.5%-7%. If your variable rate is prime + 3%, your rate would have gone from 7.5% to 10% over the last couple of years. Fixed rates are preferable to keep the amount of interest down, maximizing your savings.

The credit card game is a difficult road to navigate, especially if you are not familiar with terminology and hate squinting to see the fine print that creditors are famous for. When juggling your balances and considering tempting offers, keep the above questions in mind to make the most educated moves.
Published: 2006-04-29
Author: Katherine Martinez

About the author or the publisher
Katherine is a graduate of University of the Incarnate Word in San Antonio, TX. She receved her BA in Interdisciplinary Studies in 2001. She has since worked in the banking industry, in credit card service and disputes. She is now working as a mortgage counselor. Despite her career path, Kat has always loved writing. She hopes to refine her skills in the freelance arena while becoming an english teacher. She has been published in her company newsletter and local newspaper's op/ed column.

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