Playing The Balance Transfer Game To Repair Your Credit

Even during the recession, consumers are being bombarded
with seemingly endless offers for new credit. Credit card
companies often tempt you with their low interest rates, but
who really ends up with the best deal? Taking advantage of
balance transfer offers can often become a pricey debt trap.
Watch out for these downside risks.

The Rate Dance

Credit card offers often come with a short-term "teaser"
rate that quickly goes up, with you footing the new, higher
bill. Even if you plan to transfer your balance again before
the rate change, many people forget to switch in time or
simply can't get a better deal in time.

Costly Balance Transfers

Credit card companies routinely charge 3% - 4% to transfer
balances, and sometimes even up to 5%. Any interest rate
advantage you might have thought you had could be quickly
eroded with fees that high.

Beware the Cost of New Purchases

Creditors have to make their money somewhere and if they
give you a good deal on balance transfers they'll make up
for it with what they charge on new purchases. To make it
even harder, they apply all payments to the lowest interest
rate balance first. That means your purchases are left to
accumulate interest at the higher rate until you pay off the
lower rate balance transfer.

Don't Believe the Pre-Approved Offers

More and more often, banks are enticing consumers with
heavily promoted "pre-approved" offers that can change once
you take them up on it. In this case, lenders hype their
great offer, but surprise, upon reviewing your credit you
don't really qualify. So instead they sign you up for
another, higher rate offer.

Add-Ons Can Add Up

The recession and unemployment has given more consumers the
desire to add debt-suspension or debt-cancellation contracts
to their credit accounts. Appearing similar to insurance,
lenders have designed these unregulated contracts simply to
collect more fees. With considerable restrictions, they are
hard to collect on and ridiculously expensive.

The Effect on Your Credit Score

Your credit score can be hurt by the balance transfer game
in several ways. Applying for new credit is a strike against
you as lenders do not want to lend to folks that actually
appear to need it. Second, your debt to available credit
ratio goes up when you transfer a balance from a high limit
card to a lower-limit card. Another strike. Finally, most
people close their old accounts when transferring balances
to a new one. This again increases your overall debt to
available credit ratio, which is another negative.

The Right Way to Use a Balance Transfer Offer

The key to taking advantage of balance transfer offers is
to focus on using the low rate to quickly pay off your
balance, rather than charging up more debt. Used correctly,
they can help you eliminate your credit card debt, despite
the potential pitfalls.

If you accept one of these offers, it is essential that you
pay as much as you can each month toward paying off your
balance. Your goal should be to pay it all off, or as much
as possible, before the teaser rate expires. Make sure you
put the rate's expiration date on your calendar and whatever
you do - don't add to your troubles by making any new
purchases. A disciplined approach, along with spending
controls, will give you the advantage in attacking your
credit card debt.

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