Credit Card Balance Transfer… Read the Fine Print!
Credit Card Balance Transfer deals arrive in your mailbox and inbox on a regular basis. “Transfer your credit card balances and pay only 4.9% until December 2003”. You receive them in the mail every month. Maybe every week.
Pre-approved offers for credit cards touting a low interest rate on “transfer balances”. How does a transfer balance work?
A credit card balance transfer is where you transfer the balance from one high interest credit card to another credit card that has a lower interest rate. all things considered, who wouldn’t want to pay less interest on a credit card? A 9.9% interest rate is better than an 18% interest rate.
Before making a credit card balance transfer and signing up for that big, bold print offer on the outside of the envelope, read the fine print about making a credit card balance transfer on the inside and ask these questions:
How long will the introductory rate be in effect? 4.9% is attractive. But does that interest rate last 3 months or 6 months?
What interest rate will be charged to your card after the credit card balance transfer introductory period is over? If it’s higher than the rate on your original card, you may have to change again at that time. And that could present a problem. Credit card companies are aware that some people “credit card hop” from one balance transfer offer to another. Many of these offers now stipulate that if you transfer balances from the new card within a 12-month period, the normal interest rate will be applied to all outstanding balances retroactively.
What happens to the interest rate if you miss a payment during the introductory period? Many creditors will increase your interest rate if a payment is missed during this time.
To take full advantage of a credit card balance transfer, shop for the best deal. The longer the term for the low introductory rate, the better.
Make the most of your time and interest rate. The introductory period is a window of opportunity to pay off a large portion of your debt. Don’t just make minimum payments. Take advantage of the reduced interest rate by paying off as much of the debt as possible before the interest rate increases.
Used properly, a balance transfer can help you eliminate your debt and save you money
Credit Card or Debit Card
They both have the VISA/MasterCard logo, but credit cards and debit cards are significantly different. Debit cards withdraw money directly from your checking or savings account. You’re paying with cash so there is no grace period or “float time” as there is with a credit card. If the funds in your account are insufficient for the purchase you will be liable for overdraft fees. Some banks also charge per transaction to use a debit card.
Another difference between credit cards and debit cards is the level of consumer protection. If you use a debit card to purchase the Slice-O-Matic you saw on the infomercial and discover it couldn’t cut butter on a hot day, you have no way to stop payment the way you could with a credit card.
If your credit card is stolen your liability is limited to $50. Your liability with a debit card may run as high as $500. A stolen debit card is cash to a thief. All they need to do is forge your signature.
Debit cards also usually limit the amount of purchases you can make in a single day, typically no more than $1,000, even if your account has an abundance of cash.
Since you are paying with cash, using a debit card typically helps you stay more disciplined with your spending habits. Read the fine print on your debit card agreement for an understanding of the terms and conditions.
Did you Know?
Credit reporting agencies provide information to credit card companies and lenders who market pre-approved credit cards?
You can stop those pre-approved credit card offers from reaching your mailbox. Call 1-888-5-OPTOUT (1-888-567-8688). The three major credit card reporting agencies will be notified. You will be kept off the mailing list for two years.
Time is Money
When it comes to saving money, sooner is better than later.
While higher interest rates are important, there is no substitute for time. The earlier one begins saving and investing, the more years they have to take advantage of compound interest.
Suppose you invest $2,000 a year for 10 years from the time you’re 22 until you’re 32. Then you stop investing and let the money compound at 10 percent for 28 years until you’re 59½, which, depending on the type of account, may be the first time you can remove it without penalty. You’ll have $505,629 after contributing a total of only $20,000 and letting it compound.
On the other hand, if you wait until you’re 32 to being investing and you put away $2,000 a year for 28 years until you’re 59½, you’ll only have $295,262, even though you’ll have contributed a total of $56,000. Since money compounds more the longer you leave it in your account, it makes sense to start as early as you can.