Money Matters Lesson 3: Credit Card Balance Transfers

[College kids are notorious for being poor. And why shouldn’t we be? We take out student loans to pay for private universities, can barely balance a part-time job with our full-time courseload, and the only “balance” we’re familiar with refers to the number of points left on our dining hall cards. Oh, did I mention many of us tend to splurge every extra penny on PBR’s at the campus bar?

If you disagree with everything I just said, you probably don’t need this column. But if you’re nodding along because you’re officially an adult and still don’t know how to manage your money, then you might want to pay attention every week, because I’m going to (try to) get you through this, and make you a successful saver and a wise spender.]

Last week, I discussed the pros and cons of both credit and debit cards. One risk I run when using my credit card is letting my spending get a little out of control. When you rack up a hefty credit card bill, you essentially lose money, because with every month that goes by that you haven’t managed to clear the balance, the more fees get tacked on to your current statement.

As college students, large bills can easily get out of control, and I know I have often felt like I was drowning in bill payments. After all, most of us can’t work full-time or even well-paying jobs, and if we have a huge exam or a paper on the horizon, we may force ourselves to cut back our hours, and likewise, our weekly income.

If you have hundreds (or even– eek! thousands) of dollars in credit card bills looming over your head, sometimes a credit card balance transfer (to a zero interest card) is just what the doctor ordered. But is it worth it, and should you do it?

To transfer your credit card balance, all you need is a new card. This can be helpful, because there are tons of cards out there that offer no interest for the first six months. Whatsmore, there are options available for credit cards that don’t even charge for a balance transfer! Sounds like Christmas came early!

When I was in trouble with my Chase credit card balance, I applied for an interest-free (to start) Capital One Rewards card. Once that card got approved, I was ready to transfer my balance. I simply entered the information from my first card (my account number and the Chase business office address), and let Capital One do the rest. It took about a week, but my entire Chase balance was transferred to my Capital One card. Think of it as using a credit card to pay for another.

Almost every credit card company offers balance transfers. Why? Because if you spend with them, they are more likely to get more of your money. And if you are so financially distraught that you need a credit card to bail you out yet again, there’s a chance that sooner or later you do end up paying interest again, but a different company is collecting.

The good news? You can usually transfer other outstanding balances, including STUDENT LOANS, to your new credit card.

The bad news? You have to be careful. Make sure there is no charge to transfer your balance, so you’re not surprised if a fee shows up on your latest statement. You also have to check your old credit card statement, because you are still expected to make your minimum payments until the balance transfer has completely cleared. That is, don’t get slapped with a hidden late charge because you don’t think you have to worry about the first card anymore.

Most importantly, don’t make balance transfer a habit! If you keep playing hopscotch and bouncing from one card to the next, you’re going to put yourself in even more debt, and possibly hurt your credit rating. Choose a time that’s good for you to transfer the balance (e.g. the beginning of a school vacation, when you know you’re going to work your ass off when you’re not in class and actually save some money for once), and vow to pay off the balance before the new card starts charging you interest.

Need more info on balance transfers? These sites can help:

BankRate.com’s 5 Balance Transfer Trip-Ups

BankRate.com’s Tips to Find a Good Balance Transfer Deal

CreditCard.com’s Search for Balance Transfer Options That are Best for You

What is a Credit Card Balance Transfer? On WiseGeek.com

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