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Credit Card Balance Transfer Deals May Put You Off-Kilter

By Stewart Pelto on July 12, 2010

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You might already get enough balance transfer offers in the mail to paper a sidewalk from here to China and back. A quick glance at one of them convinces you to transfer $5000 of debt to a new 0% interest credit card. You escape high interest rates and make new purchases for free!

ALL CAPS WAKE UP CALL: MOVING YOUR DEBT FROM HERE TO THERE DOES NOT MAKE IT ANY SMALLER.

Sorry for the shouting, but you need to confront the truth to get out of debt. Feel free to use a 0% balance transfer to reduce the debt’s interest, but only if you sacrifice during the introductory 12 to 18 months to chop relentlessly at that debt until it is completely gone. Otherwise the high interest snaps back into place and grows your debt.

As for the other purchases at a 0% rate, you aren’t looking hard enough at the fine print. These offers allow the consumer to think whatever he likes as long as it inspires him to apply. They transfer their old debt, pay a fee for the privilege, and bluster past the irony of increasing their debt size in hopes of paying it off more efficiently with a lower interest rate.

You start using your new card to make purchases – hey, it’s 0%! – and are dismayed to realize you’re being charged 10-20% interest on those purchases. “Shoot,” you say, “I didn’t know that! I need to pay that down fast!”

“So sorry, sir,” they say, “all payments are applied first to the balance transfer.” You’ll need to pay down that $5000 first before you even get to take a swing at the new purchases that are racking up interest. Looks like moving your debt from here to there got you nowhere at all.

If you do manage to find some decent credit terms, do NOT make a late payment. They’ll jack you up from 0% to 29% interest in less than “Whuzzat?” seconds. Some are so trigger-happy that late payments on unrelated credit cards or even utility bills can raise your rates. Bottom line: pay MORE than the minimum amount. Each month. On time. Forever.

Note: The Credit CARD Act of 2009 has now reversed banking practices of applying payments toward the lowest APR balances first.

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