When do they make sense?

Running up a large balance on a high APR credit card can be frustrating, to say the least. A significant portion of your monthly payment goes toward interest, and you only see a slow reduction in your debt. In this case, a balance transfer may be a good idea. Many lenders and credit companies offer products with interest rates as low as 0% on balance transfers (based on your credit score) to attract new customers.

Balance transfer fees are common, usually 3% of your total balance, although this can often be waived through special promotions. Many companies also limit the amount you can transfer.

When does a balance transfer make sense?

Let's say you can find a credit card with low interest rates offered for a period of time that you can pay off your balance, little to no balance transfer fees, and a high credit limit to accommodate your balances. In this case, a balance transfer can be beneficial. When you make a balance transfer, more of your monthly payment goes toward principle, rather than the majority of your bill payment going toward interest.

In many cases, you need a good or excellent credit history to qualify for attractive introductory offers. Although you may be eligible for a balance transfer if you apply and qualify for a new card, interest rates will typically be much higher than the 0-5% introductory rate advertised by many lenders.

In general, balance transfers are not a good way to improve your credit score or avoid late payments. Balance transfers themselves can take up to two weeks to complete. During this period, payments will need to be maintained to the creditor who still holds your balance.

Next steps after a balance transfer

So you qualify for a balance transfer and have transferred your debt to your new low-interest account – what do you do now?

Make sure the accounts that held your previous balances have been paid in full by receiving a statement from your previous creditor. Once your balances are successfully transferred, it's a good idea to keep these cards open. Charging very little on your cards and paying off balances in full each month is a great way to give your credit score a boost while you pay down your debt. If you still have a balance remaining on your card, continue to make your payments in full and on time.

In the meantime, you'll want to settle your balance transfer debt before the introductory period expires. If you underpay or don't make them on time, your introductory rate could disappear.

Conclusion

Before applying for a balance transfer and a new credit card, it's a good idea to review the creditor's terms of service. Each credit company is required to disclose its full pricing plan to the consumer. This documentation should tell you the amount owed at each credit tier for bank-to-bank balance transfers and the duration of the advertised rate. Keep in mind that missing payments may void your introductory contract and rate.

If you're not sure whether a balance transfer is right for you, don't hesitate to call your balance transfer issuing company of choice and ask questions. Before the call, it's a good idea to familiarize yourself with your credit score and be prepared to discuss any negative terms found on your credit report. With the right information, your credit card company representative should be able to give you detailed information on the offers available for your particular situation.