A:

Say you've accumulated a large balance on a high-APR credit card. Rather than paying interest every month to slowly chip away at your debt, a balance transfer may be a good option for paying it off at a lower interest rate. Many credit card companies offer products with very low or even 0% introductory rates on balance transfers based on your credit score. This introductory rate only lasts a predetermined period of time, usually six to 18 months; after that, it goes up (so be sure to check that fine print in the offering).

A fee is often charged to do a transfer; it's typically 3% of the balance, though special promotions often waive it. Most cards also limit the size of the transfer.

If you are able to find a new credit card with a very low interest rate, little or no balance transfer fee, a credit limit high enough to accommodate your previous balance and an introductory period long enough to pay off the balance before the rate increases, then a balance transfer is a good idea. Your payment is going mainly towards paying off principal, versus most of it going toward interest.

For example, say you have a $3,000 balance on a credit card with a 15% interest rate. If you pay $250 per month, it would take 14 months to pay off the balance. However, if you transferred that balance to a 0% interest card with a 3% transfer fee while making the same payments, it would take only 13 months to pay off (including the $90 transfer fee), saving you $360.

In most cases, you need a good or excellent credit rating to get enticing introductory offers. You may still be eligible for a balance transfer if you qualify for the new card, but you can expect it to be far above the 0% to 5% introductory rate that many cards advertise.

Balance transfers are generally not a good way to avoid late payments or to try to improve your credit score. On average, the transfer takes about two weeks. During that time, payments still have to be made to the card company that currently holds your balance before it transfers to the new card.

Before applying for a new card or initiating a balance transfer, dig into the company's terms of service. Every credit card company is required to disclose its full rate plan. Somewhere in the documentation is the percentage you pay at each credit level for balance transfers, and how long that rate lasts if it is an introductory rate only. Bear in mind that any late or insufficient payment can invalidate introductory rates.

When in doubt, contact the issuing company for the card you want for balance transfers. Know your FICO score before you call, and be ready to discuss general information about any negative items in your credit report. With this information, the customer service representative can offer comprehensive information about the offers for your situation.

For other ideas to reduce that pesky plastic debt, see "Alternatives To Balance Transfers."
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