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Balance Transfers Revisited

© Jennifer Krausz

I'm in warning mode lately. But at least this time, I didn't do something financially dumb that I now need to warn you, my dear readers, about. This time I played it smart and did my homework.

Just this week I got an offer for a low-rate balance transfer. You may remember, I talked about these offers in my May 26 article. You take a high rate credit card balance and transfer it to another card that offers you a lower rate.

In my previous article, I mostly dealt with teaser offers, where the company offers you a low interest rate for a few months to get you to take a new credit card. Sometimes, the interest rate after the intro period is lower than the one you were paying before. Then it's probably a good deal.

But this time, I got an offer from one of my current credit cards to transfer balances at 6.9%, up to our credit limit. This offer was particularly attractive because the rate would stay at 6.9% until the transferred balances were paid off in full.

Wow! I thought. That seems like a good deal. I had a credit card that I was paying 17.9% on. The balance was low enough that I could transfer. Maybe I should do it.

Then I looked at the fine print on my credit card bills. I noticed that transfers I had done in the past were paid off differently on different cards. Sometimes the entire payment was allocated to a transferred balance until it was paid in full.

If that was done here, it would not benefit me to transfer. Why? Because the whole time I was paying off the transfer at 6.9%, interest was accruing on my previous balance at my regular interest rate. In this case, it was 12%, which isn't bad as credit cards go, but the interest accruing would more than wipe out any savings from the transfer.

I called the credit card company and found out that this is exactly how things were done. Pretty sneaky, isn't it? Those credit card companies always find a way to bilk us out of our money, even when we think we're getting a good deal. I can't wait until they are all paid off for good.

Now if you have a low balance or no balance before the transfer, it may still be worth it to you. It was only my high balance and low transfer amount that cancelled out my savings. But my point here is, run the numbers every time. There are two great calculators for figuring out things like this. The loan calculator listed in my Budgeting and Money Managment links and a credit card calculator on http://www.creativehomemaking.com . Just click on financial calculator from the home page.