by Raven Lebeau

Created on: March 13, 2009   Last Updated: March 14, 2009

Will transferring money from one credit card to another save you money? That depends on a few factors. The interest rate, associated fees, and your willingness to pay off the balance are all important factors when deciding whether or not to make the transfer.

Many credit card companies will offer an enticing introductory rate on balance transfers in order to lure people into applying for their cards. Some even offer an initial period with 0% APR. These low initial rates are not necessarily a bargain. In order to make a decision about whether or not to transfer your balance, you need to consider what the interest rate will be once the introductory period is over. If the interest rate will remain lower than the rate you are currently paying, then making the transfer is probably a good idea, unless the annual fee on the card is high or there are other fees to consider.

If the rate after the introductory period goes above the rate you are paying now, you need to evaluate whether or not you honestly can- and will!- repay the full balance during the introductory period. If the answer to that question is "yes," then making the transfer will indeed save you the difference in the interest. On the other hand, if you can't repay the entire balance during the initial period or if you think you may be tempted to make only the minimum payment, then a balance transfer is probably not the answer for you unless you combine it with another repayment strategy.

In order to see how much you can save by making a balance transfer, try using the credit card calculator at Bankrate.com. Put in your balance and your current interest rate as well as the amount you can afford to pay each month. Click on "calculate" and see how long it will take you to repay the debt. Next, leave the balance and payment the same, but enter the new interest rate and click calculate. Notice that by switching to a new card with a lower rate, you can cut months off the time it takes you to repay your debt. To see how much money you will save, multiply the payment amount by the number of months. That is the total amount of principle and interest you will pay over the lifetime of the loan. Do this calculation for both the old card on the new card, and subtract the two numbers to find your savings.
Regardless of whether or not you opt to make a balance transfer, you will need to have a plan for paying off your credit card debt. Having money automatically sent from your checking account to your credit card company is one good way to ensure that you make payments. You will also need to make sure you don't add to the balance by making unnecesary purchases.

Want to save even more money? Try finding ways to make larger payments. Cut back on other expenses. Work some overtime. Get a second job if you don't have one already, or sell some unneeded items. The more you can pay down the balance on your outstanding debt, the less interest you will pay in the long run. Also, once you are out of debt, you can allocate the money you were using to pay off debts toward your savings goals. Having money in the bank will mean peace of mind!

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