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What is a balance transfer?

A 0% balance transfer can be the best news you've received in a long time and a great way to get out from underneath a crushing debt load. Theoretically, you can transfer the balance on a credit card on which you are paying outrageous interest to a credit card offering a 0% interest rate for a limited time. The key words here are for a limited time. A balance transfer can be a big help only if you have a solid plan of debt repayment, or it can lead to even worse problems. The trick is to use this option to your best advantage. How do you handle a balance transfer opportunity?
Read the fine print Too many people think a 0% interest rate is the answer to all their credit card debt problems, but lenders often bury caveats in the fine print. Things like annual fees, transfer charges and other expenses may not grab your attention until they show up on your statement. Do your homework.
Don't count on the teaser rate The rate you see on the 0% balance transfer credit cards offered by some companies is dependent on your credit rating. Like the card offers in the mail that may say you are “pre-approved”, doesn't necessarily mean you'll get that card or that rate.
Look for special features It's not only the interest rate that can save you money, but also other incentives. Look for cards with cash back offers or rewards programs, no annual fees or other features which are important to you.
Determine what the 0% rate is good for Most cards will offer the 0% rate on transfers only. This means if you charge a new purchase to the card, the much higher interest rate will apply to the purchase and any payment made will be applied to that expense – not the outstanding balance you're trying to pay off. It is best, if you transfer a balance to a new card, to refrain from adding new charges to it.
Stay organized If a balance transfer is a strategy you're using to pay off a credit card debt, organization is imperative. First of all, you need to make payments on time, otherwise the 0% balance transfer rate evaporates and you will be slammed with a higher percentage of interest. Also, it's smart to make note of the expiration date of the 0% balance transfer offer and either have the balance paid off by then or have another 0% offer on deck.
Keep in mind always the credit card companies are counting on you to miss a payment or still have the card when the interest rate jumps. Additionally, hopping around and transferring too often will hurt your credit rating in the long run. However, as part of an overall strategy for debt reduction, if used properly, 0% balance transfer programs can really help.


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