subject: Playing The Balance Transfer Game To Repair Your Credit [print this page] You might have found yourself tempted by the endless credit card offers hitting mailboxes with regularity, even during the recession. Low interest rate offers and the chance to shift balances can be hard to resist for some in this economic climate. Before you take advantage of one of those offers, check out these facts to see who ends up benefiting the most.
The Rate Dance
That too-good-to-be-true interest rate is almost always just a teaser rate to get you to sign up for the offer. The rate after the initial trial period is usually much higher. Credit card companies are counting on you to forget or ignore the date when the new, higher rate kicks in.
Fees to Transfer Balances
Credit card companies routinely charge 3% - 4% to transfer balances, and sometimes even up to 5%. Any interest rate advantage you might have thought you had could be quickly eroded with fees that high.
Purchases With Higher Rates
Don't think you've got it made if you got what seems like a good deal on your balance transfer. Credit card companies will just make it up on what they charge you for new purchases, often charging a much higher interest rate on them. Then, standard practice is to apply payments first to the lower rate portion of your balance, then to the highest rate portion which is usually all your new purchases.
Don't Believe the Pre-Approved Offers
Consumers are more and more frequently falling for heavily promoted, pre-approved offers from credit card companies. But once they sign up, they find their credit history doesn't pass muster and they don't qualify after all. Instead, they are routed into a higher rate offer, sometimes without even realizing it.
Add-Ons Can Add Up
Debt-suspension or debt-cancellation contracts are finding increasing favor among consumers facing high unemployment and lack of job security. These unregulated offers however, are just thinly disguised efforts by credit card companies to extract more fees from a jittery public. The ridiculously expensive contracts have many restrictions and are often hard to collect on.
The Effect on Your Credit Score
Your credit score can be hurt by the balance transfer game in several ways. Applying for new credit is a strike against you as lenders do not want to lend to folks that actually appear to need it. Second, your debt to available credit ratio goes up when you transfer a balance from a high limit card to a lower-limit card. Another strike. Finally, most people close their old accounts when transferring balances to a new one. This again increases your overall debt to available credit ratio, which is another negative.
Capitalizing on Balance Transfers
The key to taking advantage of balance transfer offers is to focus on using the low rate to quickly pay off your balance, rather than charging up more debt. Used correctly, they can help you eliminate your credit card debt, despite the potential pitfalls.
To take full advantage of any balance transfer offer you accept, be sure to put the teaser rate's expiration date on your calendar. Try to pay off your balance before then, or as much as possible. Don't make any new purchases and enforce your discipline by opting for automatic payments. In no time, the advantage will be all yours as you methodically get rid of your credit card debt.
Playing The Balance Transfer Game To Repair Your Credit
