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Balance Transfers: The Fine Print
By: Megan Callahan

As you grab your mail, you notice an envelope from your credit card company, but when you open it it’s not your statement. There are blank checks inside with a letter from your credit card company letting you know that when you use these checks you will only pay 2.9% for 6 months! You think “Great! I’ll pay my taxes/down payment on the new car/pay off other debts/etc…”. But before you write those checks here are some things to think about that’s usually put in fine print and worded so you may not understand:


  1. There’s most likely a fee attached. Most credit card companies charge a balance transfer fee. Even if you write a balance transfer check to yourself and put the money in your checking account, they charge you between $15 and $100 (sometimes 2-3% of the transaction).
  2. If you already have a balance on that card you will pay the lower interest rate off first. This means that if you have $1,000 balance on your card at a rate of 8% and you use a balance transfer check with a promotional rate of 2.9% any payments you send in will be applied to the balance at the lower rate. This allows the credit card company to collect the 8% rate on that $1,000 balance until you pay off the balance at 2.9%. So while you think your credit card company isn’t going to make as much with a promotional rate, think again! They “distract” you with the promo rate so they can hold your higher rated balances longer and collect more in finance charges.
  3. Your credit card company expects you to procrastinate, and this is also to their advantage. When you have a promotional rate you are more likely to pay just the minimum payment through the promotional period. Once that period ends, they will apply a higher interest rate in hope that you have a substantial balance left. Then you have to work hard and pay fast to avoid paying a lot of finance charges in the following months.  

The Good News: 

There is a way to use the promotional “Convenience Checks” to your advantage. Especially if you can pay off higher interest rated balances from other cards or loans. In most cases you cannot use a Convenience Check from one company to pay off another card owned by that same company, but there is a loophole (see #4). Here are a few tips to use them wisely: 

  1. Ask your credit card company to waive the fee. Most credit card companies are willing to waive the balance transfer fee, especially if you are transferring a substantial amount of money. Sometimes all you have to do is ask.
  2. Pay it off before your promotional period is over. If the promotional rate is for 6 months, make sure that you will be able to pay off the balance within that period of time.
  3. Don’t use convenience checks when you have a current balance on your card. In addition, do not use your card to charge anything during the period of time your transferred balance is still on the account. You will always pay the lower rated balance first.
  4. Transfer the money into your checking account. You can use these checks to deposit money into your checking account. This is convenient especially in the event that you need to pay off a higher rated balance on a credit card but cannot do so because that card is owned by the same company that owns the transfer check (example; you cannot use a Bank of America transfer check to pay off another Bank of America credit card). In this case, write the check to yourself and then send a personal check to the company. Problem solved.  

I hope this helps next time you have a chance to use one of these checks. Be wise and happy transferring!


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Balance Transfers: The Fine Print
By: Megan Callahan
   
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