A Word of Caution about Balance Transfer Credit Cards

Filed in archive Saving on August 13, 2009

© Andres Rueda

While balance transfer credit cards appear to be an ideal way to reduce your credit card debt, you need to be aware that it may not be all that simple. In order for you to save money and get the most out of it, you will have to be careful how you use it.

Jane Bryant Quinn at Goodhousekeeping, say that:

Say you're offered zero interest on transferred balances for 12 months; you move $3,000 to the new card and use this card for $200 worth of new purchases. The first month, you send in $500 - to cover the $200 you spent and to lower your debt by $300. Surprise! The card company won't let you. It will apply the $500, plus future payments, toward reducing the $3,000 zero-interest debt. New purchases accumulate interest at the standard rate.

You can see that it is not going to go as you had hoped. By making you pay down the balance amount transferred first, the credit card company gets the higher interest for a longer time. The best way to avoid this altogether is to not charge anything new on the card until the transferred amount is fully paid first. Best way to save your money on credit cards is to pay off your balance each month.