NDSU Extension Service - Ramsey County


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From One Hand to Another

From One Hand to Another


          On your current credit card you have several thousand dollars of debt.  The offer in today’s mail for another, new credit card offers a lower interest rate.  No problem, right?  Transfer your debt to the lower interest card and save dollars on interest while paying down the principal.  Except ……. the reality of transferring credit balances is often far more complicated.

          Before signing up for the first offer to arrive you your mailbox, consider the following answers to some common questions.


Q: Some credit card companies have hiked balance transfer fees from about 3 percent to 5 percent of the amount being transferred.  How negotiable are those rates?


A: The fees generally aren't negotiable, but you might be able to use the threat of a transferring your balance to get a lower rate on an existing card.

The strategy will likely only work if you have an excellent credit history. So don't expect special consideration if you have a record of late payments.


Q: Is there any cost I should watch for?


A: It wasn't so long ago that banks limited balance transfer fees at around $100. Such caps are now virtually gone.  So if you're transferring a $10,000 balance, the fee could be as high as $300 to $500. You might find the price isn't worth it.  Start by estimating how quickly you plan to pay off the balance. Then figure out the interest charges you'll incur to keep the balance on your existing card for that time. It may turn out the cost is lower than what you'd pay in transfer fees.


Q:  How long will the new lower rate be effective?  The length of time that lower rates are effective is much shorter than in the past.  Read the fine print carefully to know the terms of agreement.  And, you could also trigger the higher default rate if you're late on a payment. So if you regularly miss due dates, it's something to consider before transferring your balance.


Q: Will my credit score be affected?


A: Applying for a new card dings your credit score in the short term, because it suggests you're in need of money. This category accounts for about 10 percent of your credit score. If you want to avoid taking a hit, check if there are any balance transfer deals offered by your existing cards.



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