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When you’re already in financial trouble, getting a new credit card may seem impractical. And certainly opening up additional lines of credit can sometimes lead to a deeper hole of debt. On the other hand, switching your balance from one card to another can help lower your monthly expenses and buy you time to aggressively pay off your debt. Before you take the plunge to start shifting your debts, it’s important to consider the benefits and possible drawbacks of this option.

The Pros

The idea of a balance transfer is moving your debt from one credit card to another. A reason to do it is to switch from a high-interest credit card to a card with a lower interest rate. Some even offer a 0% introductory rate. This can allow you to pay off some of your debt without accruing any more in the form of interest.

Moving your balance to a card with better terms such as lower fees and possibly rewards, can also help you repay the balance sooner. Further, balance transfers allow you to consolidate your credit card debt – eliminating the hassle of making multiple payments each month (which takes more time and can possibly result in you forgetting a payment).

Balance transfers have the potential to save you significant cash and make your debts easier to eliminate.

The Cons

The first problem is that not everyone qualifies for every card – if your credit score is too low, you might not qualify for the cards with better terms and lower interest rates. If you do qualify, it’s important to look at all the fees. Transfer fees can be expensive, often 3% to 4% of the balance being moved. Try to find a card where the fee is less than the amount of interest you will save from the transfer. In some cases, you may receive “convenience checks” from a card you already have; read the offer carefully to see what your costs will be if you accept such an offer.

Be aware that if you are late with a payment, you might lose the no- or low-interest period so you could actually end up with a higher interest rate. And if you aren’t able to pay off the debt during the introductory term, you could end up paying interest retroactively. Be sure that your balance transfer actually helps you shrink your debt.

The Decision

The most important part of coordinating a balance transfer is doing your research. Compare offers and credit cards so you know that you are getting the right deal. Figure out how long it will take you to repay the debt, and try to match that with a credit card. You may have to weigh a shorter introductory 0% rate and a free balance transfer against a card with a longer 0% period but a balance transfer fee. If you can budget it so that you pay off a large chunk of your debt under the lower interest rate, your savings may be worth the transfer fees and possible risks. Once you consider the pros and cons and understand the dos and don’ts of balance transfers, you can make the best decision for your fiscal health, getting out of debt and back on track.

You can compare balance-transfer and low-interest cards on Credit.com, and also see which cards are typically approved for people with credit profiles similar to yours. (You can check your own credit score for free, so you’ll have an idea where you stand.) Applying for credit causes a small, temporary drop in your credit scores, so when you do it, it’s a good idea to be relatively confident your application will be approved.

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  • HandymanRon

    On a balance transfer, something to consider is not only what is the balance transfer rate (3%, 4%, 5%), but also the length of that rate. For instance, if the rate is 3% and the offer is good for 12 months, that is an effective rate of 3%. If the offer is for 18 months, that is an effective rate of only 2% on the amount transferred.

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