As a general rule, financial experts warn against the practice of ‘robbing Peter to pay Paul’ – or, in the words of one flustered college student faced with an unexpectedly high credit card bill – Can I pay my MasterCard with my Visa?
While generally it’s a bad idea to move balances around by taking a cash advance on one card to pay off another, transferring your balance from a card with a high interest rate to one with a lower interest rate is an entirely different story.
There are literally dozens of balance transfer credit card offers out there. You can choose from credit cards that offer a low introductory APR – as low as 0% for up to 12 months on some of them – to ones that offer excellent reward packages for transferring an existing balance from another credit card. The trick to choosing one that’s right for you – or, for that matter, deciding IF one is right for you at all – is in doing the math.
Before you decide to transfer the balance on your current credit cards, carefully examine the fees and charges on BOTH cards and compare them. Don’t forget to factor in any transfer fee, check fee for the transfer check and charges for closing and opening your account. Also read all the terms and conditions of both accounts, but particularly the new account.
Two of the most important factors to consider are the length of time that the low introductory rate is in effect, and what the APR will be after the introductory rate. Don’t make the mistake that many make of assuming that you’ll be able to transfer the balance again once the introductory rate has expired. In most cases, you’ll have to apply for another credit card to do that, and the current balance transfer may affect your credit rating.
So when should you consider transferring the balance from an existing credit card to a new one? The obvious answer is – when it will be to your financial benefit to do so. In general, if the final APR on the new credit card is 1-2 percentage points lower than your current APR, the offer is worth a second look. Some other rules of thumb:
If you can pay off the full amount of the transferred balance within the introductory rate time limits, and the annual fees and transfer fees don’t exceed the interest charges you’d have incurred on your old credit card, it makes sense to transfer your balance to the new card.
For example:
You are carrying a $1200 balance on a credit card with an 18% APR. Over the next twelve months, you’ll pay approximately $216 - $18 a month – in interest fees. You are considering the following balance transfer offer:
Chase Cash Plus – 0% financing on balance transfers for first 12 months. No annual fee. No balance transfer fee. APR after introductory period varies from 11.99% to 20.91% depending on your credit.
Decision:
If you pay $100 per month on your transfer balance for a year, you will pay off the balance, and save $216. It’s a definite go – as long as you ALSO pay off any charges you make on the card in full each month. In other words, if you charge $60 on the card, then your payment the next month should be at least $160.
