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January is here and the bills for Christmas will be filling up your mailbox pretty soon! You will also be receiving a lot of very tempting “Balance Transfer” offers. This means a credit card company is wanting you to transfer money you owe on one credit card, to their credit card. Some of these offers are a good deal and may help you to pay off your new Christmas spending debt. To make the best decision, read the fine print!
What you need to look for are words that tell you these three things:
- What will they charge you upfront for the transfer?
Every credit card will charge you something. Most will charge you 4%-5% of the amount transferred. For instance, if you transfer $1000, then they add $50 to your new balance owed. You’ll see that on your first new bill.
- Do you have to pay off the balance transferred within a certain period of time?
If so, do you think you can do this? That means that you would be “borrowing” someone else’s money for 24 months with no interest and only be charged that $40 or $50 dollar transfer fee mentioned in point number one, above.
- Will they charge you anything if you don’t pay off the balance within that period of time?
- Some credit cards companies will back charge you all the interest on the original transfer amount, over the last 24 months plus interest on the $40 or $50 transfer fee. That’s a lot of money and would be a really bad idea. The only way it would be a good idea is if the old credit card is charging you more interest, for example, 26%. And the new one is charging something less like 18%. Even that’s cutting it close and I’m not sure I would do it.
- Some credit card companies will just start charging you their normal interest rate (18%-28%) from the 25th month forward. That means that you just borrowed their money interest-free for 24 months, and only had to pay $40 or $50 dollars to do so. And that original balance probably went down pretty fast too. This is a great deal so I would sign on the dotted line for this one.
Keep in mind as you transfer balances from one card to another, you should probably close the old card, or at the very least, put it in your dresser drawer, so you’re not tempted to run up that balance again. That’s a real easy thing to do; take it from someone who’s done it!