To Transfer or Not To Transfer

At least once a week, I receive a credit card solicitation in the mail. Many of these offers give new customers a low introductory rate for a few months to entice them to sign up. But are these offers really a good deal? Will they save you money in the long run? Or are they just a gimmick that helps already debt-ridden families dig a little deeper hole for themselves?

Here's what I've learned through research and experience.

An introductory rate can be a good deal. If you carry a high balance on an existing credit card, a balance transfer can save you hundreds of dollars for the six or so months that it lasts. But read the fine print: If your interest rate after the intro period is higher than your current rate, it is not worth switching unless you will have the balance paid off quickly.

As long as you pay the same amount on the new card that you had paid on the old one, you will be that much closer to eliminating your debt. And make sure to cancel the old card once the balance is transferred. That eliminates temptation to use both cards.

A lower fixed rate is often a better deal. If you know that it will take you several years to pay off your balance, one of the 9 or 10 percent fixed rate cards available through Capital One or Bank of America may be the best way to save. On a $6,000 balance, you can save up to $1,350 in three years over a card with a low intro rate.

However, it's best not to make any new purchases on these fixed rate cards. While your transferred amount is often fixed at the lower rate until paid off, new purchases will revert to a higher rate after a few months. And your payments will be applied entirely to the balance transfer amoount until it is paid off, while the higher interest on new purchases will continue to compound.

Too many transfers can hurt your credit. Multiple balance transfers in a short period of time can impact your credit negatively if you should apply for a mortgage or car loan. If you plan to apply for a loan in the near future, limit yourself to one or two of these transfers.

Are balance transfers the best option? Not necessarily. If you are financially disciplined, own your home, and have kicked the habit of relying on credit, a home equity loan will likely be your best option for paying off debt. The interest rate is usually lower than even the lowest fixed-rate credit card, and is often tax deductible. Of course, some equity is usually required for these loans.

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