credit card balance transfers

Many savvy consumers try to avoid paying interest on credit card debt by taking advantage of 0 percent balance transfer credit cards, but the decision to make the transfer requires careful reading of the balance-transfer offer and consideration of the impact on your credit score.

Credit card balance transfer offers

Consumers should start by reading the details of any balance transfer offer, focusing on four key elements:

  1. Interest rate charged on the transferred balance.
  2. Length of introductory rate.
  3. Balance transfer fee.
  4. Interest rate on the balance after the introductory period ends.

Comparing these four factors is vital to choosing the best balance transfer offer. For example, if the credit card company is charging 5 percent of the balance as a fee, that may offset any savings gained from the reduction in the interest payment.

Borrowers who may still be making payments on their debt after the introductory period should be sure the interest rate will not rise above the rate of the card they plan on replacing after the introductory period is exhausted.

Once you've found what you think is the best credit card balance transfer offer for you, check discussion forums to get feedback from other consumers.

Balance transfer impact on your credit score

MyFICO.com recommends paying off debt rather than shifting it, but a credit card balance transfer is not necessarily a bad thing. If you can reduce your debt faster with a zero balance transfer credit card, you can improve your credit score.

MyFICO.com also recommends keeping unused credit card accounts open. Once you have transferred the balance or paid off a card in full, avoid using the card and getting deeper into debt, but don't close the account.

Balance transfer disadvantages

Moving debt from one card to another, even if you reduce your interest rate, is not always the best plan. If you lack self-discipline, a balance transfer to a new credit card can result in more credit card debt. The danger comes when you realize that you now have plenty of available credit on one card once you have transferred the balance to another, and ring up additional purchases. You may also be tempted to use the new card for additional purchases, not remembering that the interest rates for purchases will be greater than zero.

Used carefully, credit card balance transfer offers can be a valuable financial tool in the quest to get out of debt.