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Question:


What’s your take on doing a balance transfer?
-CarlosW


Answer:


There are several potential problems with balance transfers. While you often pay a lower interest rate as an inducement to do a transfer, that rate often expires in a few months, leaving you to pay off the balance at a rate that could be higher than the one on the card you’re transferring from. Meanwhile, you’re likely to be charged a hefty fee, with 4 percent of the amount being transferred a common figure these days. A reason to be especially careful when considering a transfer to a new card is that once you do it, you’ll have the opportunity to start running up fresh debt on the original card. In addition to the transfer fee and the prospect of a higher interest rate down the road, you’ll be even further in debt in that case, which probably isn’t what you had in mind. If the balance transfer teaser rate is low enough for a long enough period to more than make up for the fee – and by a wide margin – then the transfer may be worth it if you’re transferring the debt onto an existing card, not a new one. Just make certain that you won’t be paying a higher rate after that.

-Conrad de Aenlle



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