Reducing Credit Card Debt with a Balance Transfer

A balance transfer can be an excellent way to get credit card debt under control. However, while balance transfer offers may seem like gifts from credit card companies, not all are in your best interest. Before you do a balance transfer, be aware that you'll most likely be charged a balance transfer fee. If the interest rate on the new card is only slightly lower, the savings may be negligible. Always read the fine print so your balance transfer doesn't end up costing you more than if you had left well enough alone.

What Is a Balance Transfer?
A balance transfer is a transfer of debt from one credit card to another. Card issuers offer consumers a much lower rate for a limited period of time for any balance transfers they make from competitors' cards onto their new credit card. This rate varies from one financial institution to another, but can even be as low as 0% for a limited time.

Balance Transfer to the Rescue?
Maybe. A balance transfer can be an extremely effective way to reduce your outstanding credit card debt, while also saving money on interest costs. However, you need to remember that this promotional interest rate is usually valid for a limited time. It's important to understand what happens after the promotion timeframe has expired. If you choose a credit card that reverts to a high rate before you pay off the transfer, you could end up paying more in the end. To avoid rate hike increase, consider using a credit card with an everyday low rate to transfer your debt.

Cut Up High Rate Credit Cards
Once you transfer a high rate balance, stop using the card. It's easy to be tempted by a zero balance credit card. Start using the card again and before you know it, you'll have two credit card balances to deal with. (Note: You may want to consider keeping the account open even if you don't use the card. If you have a long history with the credit card issuer, it could help your credit score. Read Understanding Credit Scores for details).

If you currently have a credit card with a high interest rate, consider a balance transfer to a low rate credit card, like Orange County's Credit Union's new Platinum Visa® Rewards Credit Card. Rates are as low as 9.24% APR and you'll be enrolled in a free rewards program.

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