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Credit Card Balance Transfers and Their Risks

By Michele Harris
March 20, 2023

With interest rates rising, you may find your mailbox brimming with low-interest credit card balance transfer offers. While transferring the balance from a high-interest card to one with a lower rate can save you money, they're not all good deals, and it's essential to understand the terms and conditions before you accept one.

'Not a free lunch'

"Consumers should know that a credit card balance transfer is not a free lunch," Clint Proctor, editor-in-chief at Investor Junkie, a blog for individual investors.

Remember, opening a new line of credit will impact your credit score.

"When you transfer your balance from one card to another, you are essentially taking out a new loan," says Proctor.

Read the fine print

And while companies may advertise a 0% interest rate for balance transfers, that low-interest rate is only good for a limited time - typically between 6 and 18 months, he says. After the introductory period ends, some companies will increase your rate by 10% or more.

Don't let the beauty of paying zero interest for a specified time distract you from the offer's full terms. Read all of the fine print to understand any restrictions, fees, or penalties in the deal.

Weigh your options

To determine whether a credit card balance transfer offer is beneficial, compare your current interest rate with the new interest rate, and then add any fees you would have to pay the new card issuer. If the total of the new rate plus the fees is lower than your current rate, you should consider accepting the deal.

If you do accept an offer, make sure all of your payments are made on time. Late fees are expensive, and they can add up over time if you're not paying close attention.

Note that if you can pay off the entire balance during that initial period with low interest, without adding new charges to that line of credit afterward, it could be to your advantage to accept an offer. Just make sure you know the risks and rewards!

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