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Credit card companies often tempt new customers to sign up by offering them low interest rates on balance transfers. Instead of paying your current interest rate, you can transfer your balance to a new credit card that charges less.
It sounds like a great deal, but it can get consumers into trouble. Many people over-estimate their ability to repay their debts. They think that the balance transfer will help them eliminate debt, but then they end up giving money to a different credit card company.
There are, however, some times when it makes sense to do a balance transfer. If you fall into one of these three categories, then you should consider using a balance transfer to save money.
The average credit card interest rate hovers around 20%. If your card charges more than that, then you’re probably spending too much money on interest.
When you get a balance transfer offer, check the new account’s APR. If it’s significantly lower than your current card’s interest rate, then it makes sense to transfer your balance to the new card. This is a list of the best low-interest credit cards. Also make sure you’ve got the best credit card for your credit score.
Owing money to several credit card companies makes it difficult for many people to keep up with their payments. You may pay three of your credit card accounts, but forget the fourth one that you rarely use. When you forget to make your monthly payments, your credit rating will fall and your credit card companies can increase your interest rates. This is a good time to simplify.
Transferring several balances to one credit card lets you consolidate your debt, which makes it easier for you to pay your bills on time. Debt consolidation simplifies your bills and gives you one monthly payment.
Zero- and low-interest balance transfer offers will only help you save money when you focus on reducing your debt. If you have enough money and discipline to repay your debts within a few months, then you should probably take advantage of the transfer offer.
If you don’t have the discipline, though, you’ll just start giving money to a different company. Think about that before you decide to accept an offer.
Some credit card companies charge a one-time fee for balance transfers. Even 5% can cost a lot of money when you have a large balance. Do the math, or use an online calculator, to make sure you will save money by transferring your balance to a new account.