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Question for the Money Doctors

Question submitted on Sep 12, 2011.

Question

I want to transfer a high interest credit card balance to another low interest credit card. I am trying to align my balance for the next year therefore I do not want end up in any pitfalls. Citibank has been sending me these balance transfers for a low percentage but I want to make sure that I am doing the right thing. What is your advice-is it better for me to take out a personal loan or do a balance transfer.

Answer

Thanks for the question.  I would read the terms of a balance transfer carefully before executing it. Typically there will be a transfer fee of around 3% of your balance to complete the transfer.  Sometimes credit cards give you a low rate for a period of time to entice you to make the transfer.  Then after that period of time, the rate goes back up to the normal rate.  Transferring the balance on a high interest credit card to a low interest rate card may be a good move if you are able to start paying down the balance.  I would not recommend making the transfer if you do not have plans to start paying down the balance. If you spend the money you save from the lower interest rate, then it doesn't make sense to do it.  

Making this type of transaction should be a tactic to pay off the credit card balance completely as soon as you can.  It should not be a strategy to move money from one place to another.  Credit card companies know that we are enticed to jump for a lower interest rate, but that most of us won't actually pay off the balance.  Therefore, we just wind up paying a different company (Citibank in your case) the interest.  I would take a long look at the details of the transfer, but more importantly, your plans for paying down the balance.  

I hope this helps.


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