Do you need a credit card balance transfer?

Ask the expert: Should I do a credit card balance transfer?

Question: I have almost $4,000 on my credit card that I’m paying down verrry slowly. But the interest rates are killing me! Then I read an article on your website that said, “Consider a zero-percent APR promotional financing offer.”

That seems too good to be true, though.

Why would a credit card company let me transfer $4,000 from my high-interest card to their zero-interest card? Is this legit? I’ll do it in a heartbeat. It would be a real lifesaver.

— Drew in Chicago

Howard Dvorkin CPA answers…

Howard Dvorkin on how to get out of debt fastIt’s legit, Drew. But if you’re not careful, this lifesaver can still drown you.

When Debt.com credit card expert Jason Steele called these specialized balance transfers a “clever and proven way” to save money, he wasn’t lying. However, if you’ve read to the end of his article, you noticed his warning: “There are problems with promotional financing offers.”

Let’s review those.

First, you need to know exactly what you’re getting into. When you take advantage of these offers, you’re moving your debt from one credit card company to another. You are not eliminating the actual debt.

Still, you benefit from paying no interest for a limited time. By law, that’s at least six months, but some cards offer up to 18 months. There’s another catch, however.

As Jason wrote, “Unfortunately, nearly all zero-percent APR balance transfer offers require the payment of a 3 percent ‘balance transfer fee’ — so this benefit isn’t really free.”

This means you pay for the privilege of moving your debt to a new card. The more debt you move, the more you pay. Even so, you’ll save money if you use that no-interest time to really pay down your debt.

So now I can answer your big question: Why do credit card companies make these offers if they lose money on them?

Because they don’t lose a dime.

Credit card companies are masters of psychology. They know darn well that many people will see the money they’re saving during the no-interest period and simply spend it elsewhere. Then, when the zero-percent offer expires, they still have big debts to pay at the full rate.

Bottom line, Drew: If you’re disciplined, these offers can really help you. If you’re serious about doing this, I advise you to read our report called, The ABCs of credit card balance transfers. It will take you 10 minutes, and it can save you hundreds if not thousands of dollars.

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Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a  CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

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