A charge card balance transfer can help you get out of debt faster, but only if you know what pitfalls to avoid. Here are of the most common:
Transfer fees. Think that balance transfer is free? Not always. A growing number of credit card account companies are charging a one-time transfer fee for moving your debt to their company. Typically this charge represents a percentage of the balance that you will be transferring, and it often includes a minimum charge of around $50.
Not all credit companies charge this fee, so shop around for one that doesn’t or determine if you’ll still save cash by transferring your debt after factoring in the transfer fee.
Universal default. Enticed by an unbelievable introductory rate on a new card? Before you make the jump, sift through the fine print to see if it includes a universal default clause. This clever bit of language means that you are agreeing to allow the credit card account company to raise your APR if you are late making a payment to any creditor, not just them. Sound fair? If not, you may want to keep shopping for a better transfer offer.
New purchases. Plan to transfer cash to a new card and then utilize that same card to make new purchases? If so, be prepared for a nasty surprise. Most charge card companies apply any payments that you make to the balance with the lowest annual percentage rate. This means that there’s no way to pay off the items that you purchased this month without first paying off the entire transfer balance. If it’s a large balance, this could take quite some time. Meanwhile, you’ll continue to rack up interest on these new purchases, thereby adding to your debt load.
Small credit line. DETERMINED to keep your credit score as high as possible? Then avoid any transfer offer that includes a small credit line or a credit line that comes close to the amount that you wish to transfer. Since a portion of your credit score is determined by calculating your debt-to-credit ratio, you don’t want to find yourself 100% extended on a card.
Short introductory periods. Six months without interest may sound like a nice reprieve, but it probably isn’t enough of a break to allow you to pay off your entire debt. If you’re transferring cash to pay off debts, shop around for the longest intro period that you can find. Many cards now offer 12 or 18 months without interest-a good deal indeed.
Transfer Yourself Into a Debt-Free Lifestyle
Transferring charge card account debt can be a really great deal, as long as you understand what is being offered. Spend a little time going over the offer terms and then call the company to ask questions if you still aren’t clear about any of the language. A little preliminary work could be the difference between a deal that’s good for you and one that’s good for the lender.
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