Balance transfer gone wrong, how to prevent them

Balance transfers are great for cardholders who are currently paying high interest rates on their current credit cards and know they can receive a better rate elsewhere. Everybody from a financial advisor to a wise mom will advise the card user to transfer the balance to the new, lower interest card.

Though the process may sound simple, a number of problems can occur that may cause higher debt and a worse predicament for the cardholder. Below are a series of errors credit card users make when engaging in a balance transfer.

Constant balance transfers. It seems like a great idea when stuck with a high balance—just transfer it to a lower rate card. And, since many cards offer a low balance transfer introductory period (usually six months), every six months transfer it again. Voila! low interest for the life of the balance.

The problem with this method of “self-financing” is every credit application counts on the cardholder’s credit history, and opening a new card every six months can cause major damage. Such cardholders are seen as a credit risk by lenders, potentially desperate for funds and possibly a default danger, and they’re likely to be declined further credit including home mortgages, personal loans, and car loans.

Higher interest card. Transferring an outstanding balance to a higher interest card is not reasonable and nobody would knowingly do so; however, many cardholders make this mistake. Lenders offer a low interest rate for a short introductory period, but once this offer expires rates will revert to the permanent rate, which are likely higher. To avoid this predicament, customers seeking a balance transfer should plan to pay the balance within the introductory period, or seek a credit card that offers a low rate over the life of the balance.

Balance transfer fees. Many cardholders who transfer their balance to a new card are surprised, once they read their statements, to learn that the transfer wasn’t as cheap as expected because of the fees that are sometimes charged. The balance transfer fees, when combined with the savings from the lower interest rate, should still be a better deal than the old card, but card holders should determine this in advance and not trust to luck.

Consumers engaging in balance transfers shouldn’t close the original account immediately, as doing so can also take a toll on the credit report. The latter two balance transfer mistakes can be avoided by reading the fine print of the credit card contract. If cardholders act diligently, balance transfers will be completed successfully and save card users money.