A credit card transfer--moving balances from one card to another--can be good and bad, depending on the situation. Moving debt to an account with a lower interest rate can seem like a sound idea when the budget is tight, because monthly payments may drop substantially. Inevitably, credit card transfers can be too good to be true when taking fees and payment policies into consideration. Each person needs to decide for himself if the pros of credit card transfers outweigh the cons.
Low Interest Rates
A clear pro for consumers in the credit card transfer game is obtaining a low or even 0 percent interest rate. The low rates are enticing, but are usually valid for only a short introductory period of 6 to 12 months. The transfer is a pro for credit card companies, too, because after the introductory period is over, they have new customers who may keep a balance on the card at a higher interest rate. Mint.com, an online personal money management resource, refers to the low transfer balance rates as "teasers."
Transfer Fees
One of the downsides of a credit card transfer is the existence of transfer fees. Mint.com explains that the majority of credit card companies charge a transfer fee on the balance being juggled from one card to another. The transfer fee may be a nominal flat rate, but it could also be a percentage of the balance being transfer, which could become quite substantial if the credit card balance is high. For some customers, paying a small transfer fee is worth it to obtain a lower interest rate. For others, the fee might eat up any savings on the interest.
Credit Scores
Credit card transfers have an affect on credit scores, due to the fact that the consumer is applying for a new credit account. This can be either a pro or a con, depending on individual circumstances. A person who does not have extensive experience with credit and few credit cards may benefit from an additional account and another chance to prove himself financially. Opening a credit card account and paying bills on time can establish good credit. On the other hand, transferring a balance from one card to another could possibly hurt your credit. A 2006 article in "The Providence Journal" about credit card transfers and personal finance explains that when a person applies for a new account or several new accounts within a short period of time, his credit can be compromised.
Fine Print
It's important to read the fine print before transferring a balance to a new credit card. Pamela Yip of "The Providence Journal" states that sometimes credit card companies apply payments to the balance that's been transferred at a lower interest rate first, leaving higher-interest balances from new purchases on the consumer's account to rack up interest charges. This can be a disadvantage to people who continue to use the new credit card, but will not affect those who transfer a balance and do not use the card further.
Continuing the Debt Cycle
Transferring a credit card balance to a new card can work for some people if they pay off the debt and discontinue use of the card. For many more people, says Pamela Yip, the balance transfer just perpetuates the debt cycle they have begun. Consumers who constantly transfer balances to 0 percent cards and never completely pay off their debts will end up paying much more money in the long run than if they transfer the balance once and end their excessive spending.
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