Using Balance Transfer Responsibly

Taking advantage of balance transfer offers to save on interest charges has been popular for many years. But considering today's economy, are they still a viable option? Many financial groups that offer credit cards, like Bank of America, have increased their balance transfer fee from 3% to 4%.

Curtis Arnold, Founder of Cardratings.com and author of the book "How You Can Profit from Credit Cards" believes balance transfers can still be worthwhile. However, he does offer specific warnings and safeguards for using a balance transfer.

Mike: Curtis, even though credit card rates and fees are rising, do you continue to support the utilization of balance transfer offers?

Curtis: Yes I do. Although the time period of most offers is decreasing and fees are up 300-400% in some cases, individuals with good credit scores can still find some decent balance transfer offers.

Mike: But you also suggest that cautions are in order. Can you elaborate?

Curtis: For starters, your FICO credit score must be above 730. Additionally, you do not want to exceed 30% of your assigned credit line as your credit score will likely be negatively affected. Realize this is also a time when credit card companies are slashing credit limits. And even if you cannot find a no fee 0% balance transfer offer (which is very difficult to do), you need to seek out transfers with fees at or below 3%. Avoid transfer offers that charge a 4% or 5% fee. Also, look for offers that cap your fee at or below $100.

"For example, if you transfer $4,000 with a 3% fee, your fee will be $120. However, if the fee cap is $100, you just saved twenty bucks! So always look for a cap."

Of course, you never want to be late on a payment because late payments are the most damaging thing to good credit. One-third of your credit score is based on your time payment history, so being late with any payment can be devastating.

Mike: Is there any credit card legislation coming along that can assist the consumer?

Curtis: Currently, credit card companies apply consumer payments to the lowest interest rate balance on your account first. This can be problematic for folks that take advantage of balance transfer offers, particularly if they use that same card to make new purchases.

If you have a 0% balance transfer offer, for example, all of your payments will be applied to the 0% balance, rather than the higher rate balance associated with your new purchases. This is a little known policy that has cost consumers millions and millions of dollars. The good news is that the new credit card law that will go into effect in February of 2010 will abolish this practice.