The Credit Card Shuffle
With each day's mail, you probably receive incredible credit card offers. This one has no annual fee, that one has 0% APR1 for a year! You should toss your old cards and take advantage of these offers, right? Not necessarily.
The credit card shuffle - transferring your current balances to a new, low rate card each time the rate on your old credit card increases - can be tricky. If your debt is high and the offer is for 3-6 months, a transfer may not be worthwhile. To do it right, you need to educate yourself and stay organized.
- Read the fine print. Make sure you know what the interest will be once the introductory period expires. Balance transfers can take up to eight weeks to process, so you should shop for a new offer in advance.
- Choose a card with no annual fee, especially if you pay your balance in full each month.
- Determine if the card has a fixed or variable APR.1 If you choose a variable rate, find out how the rate is calculated, plus how much and how often the rate could change. You'll also want to ask if finance charges are calculated by the daily balance method and does it include only one cycle.
- Avoid credit cards with no grace period. If your credit card doesn't have a grace period, interest will begin to accrue as soon as a purchase is made. Some credit cards have a grace period for purchases but not cash advances.
- Be aware of hidden fees and penalties. Missed payments can result in a huge jump in your interest rate.
- Close old accounts. Otherwise, you may be denied future credit if you have too much available credit. Also, be sure your credit report reads "closed by consumer."
- Negotiate with your current issuers. Before you make a decision, call your current card holders and try to negotiate a lower rate. They may agree to do this to retain you as a customer.
1 APR = Annual Percentage Rate