Balance transfers may be a good idea, or a terrible one.

The credit card industry is a very profitable one. The typical customer carries a balance of thousands of dollars and is willing to pay interest rates that far exceed the going rate for other types of loans. In fact, sometimes the rates are double or triple the interest rates that could be had through a bank loan. But the market is also a competitive one, and the card issuing banks are always concerned about obtaining new customers. One popular way of obtaining new customers is to send you an offer in the mail for a new, pre-approved card that will allow you to transfer a balance from an existing card at a reduced, or teaser interest rate. Is this a good idea?

It might be, or it might be a terrible idea. The difference, is, as always, buried in the fine print of the cardmember agreement. These deals usually include a low interest rate that applies to balance transfers only. Sometimes this rate is good for the life of the loan, and other times the rate is good only for a set period of time, such as six months. It is up to you to read the agreement thoroughly and decide if you are better off for accepting it.

Here are some things you ought to consider before agreeing to accept a new credit card for balance transfer purposes:

• What is the interest rate? Is it substantially lower than the rate you have or can get through your existing account? It may be possible for you to get a matching rate from your current account. Call them and ask. Or talk to your bank or credit union. They may be able to provide you with a fixed rate debt consolidation loan at a favorable rate of interest.
• How long is the teaser rate going to last? Six months? A year? Until you pay it off? A six month reduced rate won’t help you if your balance is so high that you’ll take years to pay off the loan. If that’s the case, you will probably gain nothing by taking out a new account.
• What is the interest rate for new charges? If you are using a card for paying off an old balance, you probably shouldn’t use it for new purchases. Typically, new purchases will earn interest at a much higher rate, but payments will apply to the portion of the balance at the lowest rate first. That means that new purchases could be accruing interest at a high rate for a long time.
• What is the penalty interest rate and what triggers it? If you make a late payment, will it affect the rate and by how much? Watch out for the universal default clause, which permits the company to raise your rate if you make a late payment to anyone.

Some of these deals are quite good. But some stink, and the details are in the fine print of the agreement. Be sure that you read it carefully before accepting a new card.

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