I’ve heard a lot of talk recently about credit cards, specifically about the rates going up. While this isn’t anything new (credit card rates are always fluctuating) it is, and will be, cause for concern for many people carrying balances on their credit cards. The amount of interest that you will pay will increase and the time it takes to pay them off will also be extended. In order to avoid these extra charges and pay your debt off sooner, you may want to look to balance transfers. But you’ve got to be careful doing this because you could end up paying even more.

So many cards out there are offering very low balance transfer rates that it shouldn’t be too difficult to find one. Probably the most important aspect I look for (other than the length of the promotional period) is whether or not there is a fee for doing the transfer. Most of the offers that I get in the mail charge a 3% fee just for doing the transfer. Depending on how quickly you think you can pay off the debt, this may or may not be worth it. You will have to decide.

So once you’ve made a balance transfer, make sure that you don’t use the card again until you’ve paid it off in full. The reason for this is because credit card companies charge different interest rates on different balances depending on how they’re categorized. You’re balance transfer can be 0%, new purchases at 17%, and cash advances at 22%. The rub comes in how your payments are allocated. Any payment you make will be applied to the lowest interest rate first which as we know is completely opposite of how you would like it to be done.

So even if you pay off the amount of all new purchases in full every month, you’re actually paying off the 0% interest balance transfer and accruing interest on the new purchases at 17% (in this example). This is why you should never make any new purchases on a card to which you’ve made a balance transfer. It’s simple enough not to do, but the credit card companies are hoping for your ignorance on the subject. So if you’re looking to reduce and eventually eliminate your debt, balance transfers can be the way to go. Just make sure you do things carefully to avoid any other unnecessary charges along the way.

(Editors Note: As you can see (unless you’re reading the feed), there’s a new layout here at Fiscal Musings. You may be wondering why I changed the layout again since I already recently changed it. A little while ago I migrated the blog over to a WordPress platform, and had to pick a theme in order to do so. I wasn’t completely happy with the theme, but I hadn’t found anything better at the time. I also knew that I wanted a three column layout. So now I’ve finally found what I was looking for. As usual, there are still a few changes that I need to make, but I’ll hopefully be taking care of them soon. Also, if you have any comments or suggestions about the new layout, I’d love to hear them.)

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