Moving your debt to a lower-interest credit card might seem like a smart solution to slow a growing balance, but that may not be the case. Fine print could reveal fees, changing introductory interest rates, and other unexpected hits to your wallet.
To find out if an offer is a good one for your situation, understand these four important features of a credit card balance transfer offer.
1. Fees
The two most common fees are the transfer fee and annual fee. A transfer fee is the amount a financial institution charges to transfer debt onto its credit card. There are some companies that do not charge this fee, but it's common to see transfer fees ranging from 3 to 5 percent of the transferred amount.
Annual fees also vary greatly. While some cards have no annual fee, others may charge hundreds of dollars. In addition, some companies waive or reduce the fee for those who make a certain amount of purchases with the card during the year.
The solution for avoiding fees? Read the fine print on the offer.
2. Interest Rates
There are several interest rates to consider when reviewing options to transfer a credit card balance.
The first is the introductory rate. Ideally, you want to find a 0 percent interest rate for the time it takes you to pay off the balance. To lure customers, many companies offer a low introductory interest rate for the first few months, after which the rate increases. Consider the term of the introductory rate and whether or not you can pay off your transferred balance before that offer expires.
Note that many promotional rates are available only to those with excellent credit scores. If you have less than perfect credit, there is a chance that you may be charged a higher interest rate.
When the introductory period ends, the interest rate will increase. Some companies will retroactively charge the higher rate to your entire transferred balance if it is not paid off in full. In addition, a late or missed payment may increase the interest rate on your card.
Find out, too, if there are differing interest rates for purchases, cash advances and balance transfers. Again, the same advice we gave above: read the fine print on the offer.
3. Payment Allocation
Not all debt is created equally in terms of your payment. The amount of your minimum monthly payment may go to paying off the portion of your balance with the lowest interest rate. Ask the issuing financial institution how it allocates your payments.
By law, any amount paid in excess of the minimum payment must go against the portion of your balance with the highest interest rate.
Know what to expect in terms of your minimum payment. To transfer debt does not necessarily mean that you will have a lower payment. Your payment will be determined by the terms of the credit card.
4. Credit Score
Your credit score may impact the interest rate offered to transfer your balance. The better your score, the more likely you are to get a good offer. Your credit score may also take a hit by opening up a new credit account.
Whatever you decide, it's important to evaluate the pros and cons of moving your debt to a new credit card. You may inadvertently pay more than you intended, even on a lower-interest card.
Learn more about Hanscom Federal Credit Union’s low-rate Mastercard® Platinum credit cards with no annual fees or balance transfer fees. The low interest rate is the same for purchases, credit card balance transfers and cash advances. Apply online, over the phone or at a branch.
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