Many consumers are bombarded with offers for credit card balance transfers and many of the offers seem like a good deal. However, credit card companies do make money from the service, so consumers should be wary of jumping right in. Balance transfers allow consumers to move their high interest balance to a new card with a low interest rate for a fixed amount of time. Card companies make money from the service from customers who cannot pay off their balance before the promotional period ends.
First, be sure to look at the terms carefully. Create a plan for paying off the debt before the promotional period ends. Also, be sure to have a full understanding of the penalties and costs. Most credit card companies do charge a balance transfer fee that ranges from 1% to 5%. That can be a large amount if your balance is high. Also, be sure to make all your payments on time. Many cards will raise your APR if you are late twice in a 12 month period.
Credit card balance transfers can be a great idea for some consumers, but it is important to create a plan and understand the costs and penalties involved.