A credit card account in good standing can provide a useful money management tool, if you do some diligent comparison shopping before applying and are careful about interest rates, account limits and payment deadlines. You may transfer balances from one card to another to lower the interest rate on the borrowed money, but there are some traps and pitfalls to keep in mind.
Considering The Pros
Transferring your balance from a high-interest account to a lower one will, in theory, save some significant money. To pay off a $2,000 balance at 13 percent interest in six months, for example, requires monthly payments of $347; the same amount at 0 interest requires $334 a month, a savings of $77. In addition, consolidating accounts by rolling balances into a single card, then cancelling the others, can de-stress bill-paying day as you gather fewer statements, write fewer checks, and buy fewer stamps for the payment envelopes. Fewer accounts to keep track of also means less chance of overlooking an account on payment day, an event which results in an aggravating late-payment charge and possibly a permanent bump in the interest rate.
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Fees and Go-To Rates
They say nothing in life is free, and they'd be right about a balance transfer, which for some credit cards means a balance transfer fee. It's an interesting policy for companies that claim to be saving you money, but it's a common practice and can amount to 2 or 3 percent of the total transferred. The fee may appear on the account from 30 to 60 days after the date of the transfer. This means a charge of up to $60 on that theoretical $2,000 account, which just about wipes out the savings from the lower interest. The "teaser rate," whatever it may be, won't last forever. At some point, the interest resets--quite possibly to a rate that's higher than the one charged on old account. If payments are missed or late, then more fees, another "go-to" interest rate and irritating reminder letters are the result.
Making It Work
To make a success of your balance transfer, research credit card terms on a third-party financial website such as CNN Money, Kiplinger, NerdWallet or Credit Karma. The latter site gives thorough information on current offers, including the terms on balance transfers, credit score required for approval, perks and rewards, and a link to the application page. NerdWallet helpfully calculates the real balance transfer cost in terms of an effective annual interest rate, taking into consideration the balance transfer fee, introductory interest rates, and ongoing interest after the rate resets. The lowest such rate shown on the calculator as of May 2015 was 6.75 percent.