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5 Questions to Ask when Doing a Balance Transfer

If your credit card interest rate is more than you can handle, a balance transfer may be a good option to help you get your debt under control. Before you agree to transfer your existing balance to a new credit card, however, ask the right questions to prevent unpleasant surprises after the transaction.

1. How High Is the Interest Rate?

You may have an offer to transfer your credit card balance to a low-interest credit card, but a low interest rate is often just a temporary offer to attract new customers. After a preset period, typically six months, your low interest rate will reset to the default rate. If the default rate on your new credit card is higher than the interest rate you were paying on your old one, a balance transfer may not be a wise financial decision.

2. What Is the Credit Limit?

It's imperative that you find out the credit limit on your new account before transferring any debt. If you attempt to transfer $500 to a credit card with a spending limit of $450, your new credit card provider will comply with your request--and then charge you an over-the-limit fee.

3. How Much Will It Cost?

Balance transfer fees are common and can be as high as 5 percent of your outstanding balance. Ask about fees to find out how much the balance transfer is going to cost you up front. One or both credit card companies may charge balance transfer fees.

Remember, you can always attempt to negotiate a lower balance transfer fee. The new credit card company wants your business, and you can use this to your advantage to get a lower fee. Your old credit card company may be less apt to negotiate, since you're moving your debt elsewhere, but if you intend to keep your account open and have a good history with the company, you may be successful in obtaining a lower fee.

4. Is the Transfer Rate the Same as the Purchase Rate?

Just because you transferred your balance to a credit card that offers a zero percent interest rate for six months, that doesn't mean that you won't pay a much higher interest rate for purchases you make during the introductory period.

Some credit card companies advertise a low introductory rate for balance transfers but neglect to mention that the rate applies only to the transferred debt. The credit card company then applies a much higher interest rate to additional debt you accrue on the card. Not all companies participate in this practice. Before you transfer your balance, make sure that your new interest rate applies to purchases as well as your transferred balance.

5. Is the Interest Rate Fixed or Variable?

A fixed-rate credit card carries an interest rate that doesn't change. Of course, credit card companies have the right to raise your interest rate in certain circumstances, but if you pay your bills on time and manage your debts responsibly, you can trust that your interest rate on the account will remain steady.

A variable-rate credit card, however, has an interest rate that fluctuates with current market rates. This could result in your interest rate's changing monthly. You have the right to know if your new credit card provider offers a steady interest rate or a variable interest rate before you agree to transfer your balance.