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Winning the Balance Transfer Game

If you do it right, transferring a high rate credit card balance to a card with a lower interest rate can help you save money in finance charges and pay down your debt much faster.

Some people treat balance transfers like a shell game. They keep their money flowing from one low or sometimes zero) interest rate card to another to avoid paying hefty finance charges. This strategy can work well if you are careful. But there are some pitfalls you will have to learn to avoid.

Verify that there are no fees for transferring your balance. Balance transfer fees are usually waived when you are first opening a new account. Once you are a customer they will charge you a percentage of the balance transfer as a fee. This will cut into the amount youare saving by transferring the balance. So hurry up and transfer all of your higher balances when you first open the account. Don't wait until later.

Don't use the card for purchases or cash advances. When you send in a payment, the credit card issuer will apply your payment to the category with the highest interest rate. Since your purchases will not be at zero percent, your payments will just go toward paying off the purchases and the zero percent balance will remain. While it's true that you won't be paying interest on that amount through the introductory period, you also won't be paying down your debt, which was the whole point of transferring the balance to begin with. Also, once the introductory period ends, that high balance will start accruing interest again, making it even harder to make your credit card payments.

Be careful if you plan to continuously switch from one low-rate card to the next. Some people consider this a smart way to 'work the system.' But it may cost you in the end. Part of your credit score is based on the number of times you have requested credit and the number of accounts you have had open. When you later go to apply for a mortgage or auto loan you may find that all of those credit card flips have hurt your score and you no longer qualify for the best interest rates. If that happens, you'll be paying more in interest charges every month.

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