By Candice Choi, AP Personal Finance Writer
NEW YORK (AP) — You have $1,000 in holiday debt in one hand. In the other, an offer to move the balance to a credit card with a lower rate. So what's the hold up?
It's not always a cut-and-dry decision because balance transfers can be rigged with surprising terms. To start, the cost for switching could be higher than you expected. And as attractive as an offer seems, it might not be the best deal around.
Before jumping on the first mailing you come across, here are answers to some common questions.
Q: Some credit card companies have hiked balance transfer fees from about 3% to 5% in the past year. How negotiable are those rates?
A: The fees generally aren't negotiable, but you might be able to use the threat of a transferring your balance to get a lower rate on an existing card, said Odysseas Papadimitriou, founder of CardHub.com.
The strategy will likely only work if you have an excellent credit history. So don't expect special favors if you have a record of late payments.
You also want to be realistic and specific in your requests. That means asking to knock more than a few percentage points off your rate probably isn't a smart bet if your credit score is just a so-so 650. Of course, it might not be worth negotiating with your old bank if you have a clearly unbeatable offer for a balance transfer from another bank.
Q: Is there any cost I should watch for?
A: It wasn't so long ago that banks limited balance transfer fees at around $100. Such caps are now virtually gone, Papadimitriou said. So if you're transferring a $10,000 balance, the fee could be as high as $300 to $500. You might find the price isn't worth it.
Start by estimating how quickly you plan to pay off the balance. Then figure out the interest charges you'll incur to keep the balance on your existing card for that time.
It may turn out the cost is lower than what you'd pay in transfer fees.
Q: How long do introductory rates on balance transfers typically last?
A: Introductory rates — usually 0% for balance transfers — expire much quicker these days. They now generally last six to nine months, about half the time period offered a year ago. The longest offer you'll see is probably about a year, Papadimitriou said.
In some cases, banks might use your credit score to determine how long you get the introductory rate. Either way, be sure you know when the default rate kicks in, and what that rate will be.
You could also trigger the default rate if you're late on a payment. So if you regularly miss due dates, it's something to consider before transferring your balance.
Q: Will my credit score be affected?
A: Applying for a new card dings your credit score in the short term, because it suggests you're in need of money. This category accounts for about 10% of your credit score. If you want to avoid taking a hit, check if there are any balance transfer deals offered by your existing cards.
Note that your score could also take a hit if you close an account after transferring its balance to another card. There are two reasons for this.
The portion of your available credit you use accounts for 30% of your score. Closing an account will lower your total credit limit, and likely drive up the percentage of credit you use. The length of your credit history also accounts for another 15% of your score. So consider how long you've had an account before you close it.
Q: Does the introductory rate on balance transfers apply to new purchases as well?
A: Not always, so read the terms carefully. In some cases, a rate might apply to both the transfer and new purchases, but for different amounts of time.
Be sure to shop around to see that you've got the best deal going. Check with your existing credit cards first to see what they offer. After that, try sites such as Bankrate.com, CardHub.com or CreditCards.com.
Q: Is there anything else I should consider?
A: Don't assume your balance transfer will go through. A bank might approve only part of your request if they don't want to extend that much credit to you. So keep paying off your old card until you get confirmation that the transfer went through.
If you're transferring a balance because an introductory rate is expiring, don't procrastinate. It could take longer than you expect, and things don't always go smoothly. For example, you might need more time to transfer the remainder of a balance if your bank only approves part of your request.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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