Saving Money with Credit Card Balance Transfers

If you are like most people at a day goes by that you do not receive at least one or two offers for new credit cards that promise to save you hundreds or even thousands of dollars in interest charges if you transfer your balance to their card.

But can you really save money with balance transfers? And is it worth doing?

I'm going to make a very firm statement....it depends.

Ok, I know that sounds wishy-washy, but here's the deal. You can save yourself a considerable sum of money by transferring a balance from a credit card with a higher interest rate to one with a lower interest rate, as long as you avoid a few pitfalls.

• Verify there are no fees for transferring your balance. Balance transfer fees are usually waived when you are opening a new account. Once you are a customer they will charge you a percentage of the balance transfer as a fee. So transfer all of your higher balances when you open the account. Don't wait until later.
  
• Don't use the card for purchases or cash advances. When you send in a payment, the credit card issuer will apply your payment to the category with the highest interest rate. Since your purchases will not be at zero percent, your payments will just go toward paying off the purchases and the zero percent balance will remain. While it's true that you won't be paying interest on that amount through the introductory period, you also won't be paying down your debt, which was the whole point of transferring the balance to begin with. Also, once the introductory period ends, that high balance will start accruing interest again, making it even harder to make your credit card payments.
  
• Do not continuously switch from one low-rate card to the next. Some people consider this a smart way to 'work the system.' But it will cost you in the end. Part of your credit score is based on the number of times you have requested credit and the number of accounts you have had. When you later go to apply for a mortgage or auto loan you may find that all of those credit card flips have hurt your score and you no longer qualify for the best interest rates. If that happens, you'll be paying more in interest charges every month.

If you do it right, transferring a credit card balance to a card with a lower interest rate can help you save money and pay down your debt.