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Balance transfer offers these days seem like the perfect opportunity to consolidate debt and reduce or eliminate interest charges on your credit card debt. But beware of your reasons for transfering balances. Many fall into the trap of consolidating balances, only to find that a credit card they paid off fills up with a new, sometimes even bigger balance. Remember - just because your debt is consolidated, and that you have a lower interest rate does not mean it goes away. Psychologically, you will find all those 0.00 balances very enticing, and it will no doubt tempt you to spend. Instead, use your new-found rate as an opportunity to pay off your consumer debt faster, and get out of the rat race that plagues many Americans today.

If you decide that a balance transfer is the right option for you, there are some things to remember. First and foremost, always pay your card bill on time. All credit card companies have some provision for raising your rate with even one late payment, which usually means that you not only lose your great "0% interest", but that the new interest will be much higher than the card would charge its typical customers. Second, be careful about which cards you do or do not cancel. Typically, cancelling your older cards (those from which you transfered) will negatively affect your credit score because you are erasing your positive credit history. Opt to cancel your new cards once the balance is paid off instead. Finally, a word of caution about purchases. Use your new card only for your balance tranfers. Credit card companies charge regular interest on purchases, and apply your payments to the LOWEST interest rate balance first. For example, if you have a $5000 balance at 0%, and you buy a $2000 TV on the same card, you must pay off your entire $5000 balance before your payments are applied to your TV. Therefore, when the credit card company computes your interest, they will keep charging you for the TV purchase month after month with no decrease until you start paying into that portion of your debt.

Be smart about your debt. Balance trasnfers are a great tool to temporarily reduce the problem of high interest rates, but if your spending habits remain in place, the trap is set once more. Don't pay interest, earn it.

Learn more about this author, Peter K.
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