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Balance Transfers - Good or Bad?

By: Steve Baik

Ideally, transferring the balance from a high APR card to a 0% or low APR card makes good sense. You can save a great deal of money by doing this.

The 0% Intro APR that is offered by credit card issuers are also known as "teaser rates." This is the same type of "teaser rate" that is offered by mortgage lenders on some Home Equity Loan products. Just as the name suggests, it is a marketing technique that attracts or teases new customers looking for lower rates.

For some people, balance transfers have become a game of sort. Once their Intro APR nears expiration, they simply apply for a new card offering a promotional APR. They continue this trend until they've paid off the balance in full. If managed properly, you could easily save hundreds or even thousands of dollars in interest fees.

If you're like the majority of people struggling with debt, a balance transfer may be helpful in the beginning, but what about after the Intro period? If your credit is good enough, you can apply for a new credit card, and do another balance transfer. But, what will you do when your approved credit limit is lower than the balances you hold on all your other credit cards? Will you continue to open new accounts until you've depleted all your resources? It's probably not the best idea. This snowballing effect can potentially open doors for more spending and bigger debt problems.

Then, as your debt and financial obligations increase, your credit score will begin to drop. Once your credit score drops, your ability to qualify for new credit will begin to evaporate. This article is not meant to deter people from taking advantage of balance transfers, but instead, serves to remind people that more credit isn't always necessarily better.

Remember that credit is not money you own. It is a financial liability, and you will pay for it with interest. So, be sure to control your spending habits, and try to use cash whenever possible.