Credit card interest rates often start in the low double-digits and go up from there. Paying off your credit card debt is usually one of the best investments you can make. If you don't have the cash to pay off a credit card, you can sometimes use a balance transfer from another card to pay down your debt. Just pay careful attention to the terms of your balance transfer to ensure you're getting a good deal.
Most credit card companies won't let you transfer a balance to another card in the same financial family. For example, if you have a balance on a credit card issued by particular bank, you generally can't transfer that balance to another card issued by same bank. However, you can usually process a balance transfer with any other type of card. You might also get around this provision if your card issuer offers balance transfer checks, which you can use to make a deposit in your bank account. After depositing the check, you can use that money to pay off any balance you want. Make sure that this type of checking deposit doesn't constitute a cash advance, which could carry a different set of fees.
Balance transfer offers typically carry upfront fees of around 3 percent, meaning for every $100 you transfer you'll get charged $3. Some cards charge up to 5 percent. While card issuers used to cap the fee at a reasonable level, most now have no limit. If you're transferring a large balance, you could face an enormous fee. For example, if you transfer a $20,000 balance at 3 percent, you'll owe $600 in transfer fees. If you intend to pay off the balance in a short time, you might be better off leaving it where it is. A card with a 12 percent interest rate only charges 1 percent per month, so if you pay 3 percent on a balance transfer, you're essentially paying three months of interest for the privilege of the transfer.
Balance transfer offers often come with a teaser rate of as low as zero percent. However, that rate might spike dramatically after just a few months. Since you probably had to pay a fee to transfer the balance in the first place, getting stuck with a card with a high interest rate could make you worse off than you were before the transfer. Always check the duration of the offer before you submit a balance transfer.
A balance transfer is only a smart move if you are moving the balance to a card with a lower interest rate. Rather than paying the fee for the transfer, consider calling your original creditor and asking for a lower rate. Your card company would no doubt prefer to keep your business rather than see you transfer away -- so you might have some leverage in negotiating for a lower rate. You can also try to negotiate down the balance transfer fee with your new card issuer.
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