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If you're not using your credit card but you want to minimize the finance charge on your existing balance you can transfer your balance to a new card with a low introductory interest rate. Many people have found this strategy helpful in paying down large credit-card debts. However, doing so implies many risks you should take into account prior to taking the first step.
Before you begin low-interest card hopping, be sure to be informed. You have to evaluate cards carefully, and like any financial strategy, card hopping has its dangers. If you still want to try this method of debt reduction, here are some tips to help you make the decision:
Different Rates for Different Things
Be sure that the low interest that a credit card is advertising actually covers balance transfers. Often, when you read the fine print, you'll find that incredibly low interest rates are only in effect for new purchases. Balance transfers are often at a higher rate and you may end up paying even more than you were paying with your previous credit card.
Promotional Periods Have an End
Sometimes low introductory interest rates last for only a few months. Be clear about the time frame. Depending on how fast you plan to pay off the card, you may be better off keeping the card you have. If you just need a couple of months to cancel the credit card balance, you can take advantage of 0% APR and 0% Balance Transfer promotional periods.
However, most of these credit cards, once the promotional period has ended feature higher interest rates than average credit cards. Thus, you may easily loose what you saved in the first couple of months of 0% APR unless you cancel the whole credit card balance within this period or you transfer the balance to another credit card before the period ends.
Additional Fees And Costs
Be informed about any balance transfer fees. Cards offering low introductory rates often have them. Some charge a percentage of the transfer amount, which can be high if you have a large balance. If the card you are considering includes these kind of fees make sure to ponder them when deciding whether transferring the balance to the new card will save you money or not.
Some credit card companies also charge termination fees and retroactive interest charges if you decide to close the account or transfer the balance to another card before a specified time period has elapsed. This way, they discourage people from using the low rate credit card hopping technique and force client fidelity.
When you transfer a balance from an existing card to a new one, it's a good idea to close the account you're leaving. In this fashion, you won't be tempted to use the card, and it won't be an open credit line on your credit report. Closing accounts briefly lowers your credit score in some circumstances too, so be sure to close an account not sooner than six months before seeking new credit.
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