| April 12, 2012

Weigh the pros and cons of balance transfer credit cards

Paying down credit card debt involves more than simply making monthly payments. There are several strategies borrowers can employ to maximize their payments and eliminate their balances more quickly. For example, adults who carry balances on multiple credit cards should focus on paying down the card with the highest interest rate first since this card is levying the highest interest charges. Other strategies involve negotiating rates with lenders and making more than one payment each billing cycle.

Another popular strategy many borrowers employ is transferring their balance to another credit card with a zero percent introductory rate. Balance transfer credit cards can be an effective way to pay off a balance, according to Fox Business. But like any other type of credit product, there are both benefits and caveats. If cards are misused, borrowers may find themselves in more debt than they started with, so it's important to know how these cards work before turning to them.

The most lucrative balance transfer cards are those that offer a zero percent introductory rate. This allows borrowers to make payments for a certain period without incurring interest charges, which helps them pay off their balance more quickly. However, it's crucial that borrowers understand how long the teaser rate lasts and to make sure they can pay their full balance within this time period. If not, they may find themselves stuck with a higher interest rate than their previous card. For this reason, individuals should also pay close attention to the standard rate when they sign up for a card to make sure it's reasonable.

Intro periods vary by card, with some lasting six or 12 months and others going as high as 24 months. Borrowers who are examining different cards should look at each intro period and calculate what their monthly payments would need to be to pay off the full balance during each time period. Individuals may want to choose the fastest time period to pay off their balance, but this can backfire if their payments are derailed by a sudden expense or other financial emergency. For this reason, adults should choose a card with an intro period that is reasonable for their income and monthly payments.

Lastly, balance transfer cards should be strictly used for making payments, not purchases. Some borrowers are often blindsided when they discover that purchases made with the card do not fall under the zero percent introductory rate, but the card's standard rate. This can only add to their balance and make it harder to pay off their bill by the time the teaser rate expires.

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