By Erin Peterson - Bankrate
Those low-interest credit-card balance transfer offers showing up in your mailbox almost daily -- some going as low as zero-percent -- are hard to resist. But read before you leap. The fine print, that is. You could end up paying more than you would have if you'd just stayed put.
That's not to say transferring balances is a bad thing. It's just that you should understand exactly what you're doing and figure out whether it's really good for you.
Here are 12 key questions to ask before you make the decision.
1. How long does the rate last? Typically, introductory rates last six months, and occasionally a year. Some last for the life of the transfer. So make sure you know how you intend to pay off your transferred debt. If you can pay it off during that interest payment holiday or super-teaser rate it may be a good deal. If not, think twice. If you know you cannot pay it off within that time frame, sit down with a calculator and work on different scenarios. You may find that if you haven't paid off enough of the transferred balance in, say a year, you're actually moving into a worse deal.
2. What are the minimum requirements to keep the low rate? Even a zero-percent rate comes with a price, says Gerri Detweiler, founder of Ultimate Credit Solutions. "Some cards may require you to make a purchase every month to keep the zero-percent rate," Detweiler says. You'll probably also have to pay your monthly bills on time every month -- and some may even require that you pay all your other bills on time, too. Be wary of broad default clauses that give the credit card companies the option of raising your rate at their discretion. "It's okay if the default clause lets them raise the rate if you make a late payment more than twice in six months," says Detweiler. "But I'd steer clear of cards that say they can raise your rate if they determine, in their interest, that your account carries risk."
3. What's the interest rate for new purchases? It may be the same low rate as the transfer, but don't count on it. If the rate is higher, you may also find yourself in for a shock when you begin to make payments. Any payments you make are typically applied to the lowest-rate items, which is exactly the opposite of what you'd normally want to do to get out of debt, says Patricia Hasson, president of the Consumer Credit Counseling Service of Delaware Valley. "If you transfer a balance to a new card, it should be a card you don't plan to use," she says.
4. Is there a balance-transfer fee? Typically, cards charge about 3 percent of the transfer, up to $50 or $75. "Add that into the interest rate you're getting to see if it will correlate into savings over time," says Hasson.
5. How is the average balance on the account calculated? Some companies use a two-month moving average, which tends to be detrimental to customers carrying a balance. Try to find a card that uses an average daily balance. Two-cycle billing means the interest for the current billing cycle is computed using the average daily balance over the last two billing periods, the current period and the previous period. If you carry a balance this usually means you will lose the grace period on your new purchases.
6. What will the rate be when it finally changes? Though you may not be able to know that rate with complete accuracy, see if you can get a ballpark figure, says Catherine Williams, vice president of financial literacy for Money Management International. "When you're dealing with balance transfers, you're really gambling," she says. "You're hoping you can find an equal or better rate when the rates change, and in today's rising interest rate environment, it's probably not going to be there."
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