Is using a balance transfer on credit cards worth it?  How do you save money and what are the pitfalls?

Why Transfer Your Balance
The only reason why you would transfer your credit card balance to a new card is to save money on the finance charges.  Many companies offer a “zero APR” credit card balance transfer for a limited period, after which a different APR kicks in.  Depending on how much is on your credit card balance, this can mean real savings.

What to Look for with Credit Cards Offering Balance Transfers

Here are three ways you can comparatively shop for credit cards when looking to do a balance transfer:

* Initial Period.  The most common time period you are going to see with a zero APR balance transfer is six months.  Make sure you do not go with a card that offers a shorter grace period.

* APRs Before and After the Initial Period.  Usually, the APR during the initial period should be zero APR.  The thing to watch out for is how high the APR is after the initial period is over.  Use the card that offers the lowest APR after the initial period to continue your savings.  

* Transfer Fees.  We don’t ever get anything 100% free, right?  The way banks make their money with these fantastic balance transfer offers is that they usually charge a transfer fee. Transfer fees may be a minimum amount and/or a certain percentage of the balance (whichever is more).  Before you take “advantage” of the credit card balance transfer, do the math to make sure that the transfer fee does not wipe out any savings you would have made on the finance charges.

Pitfalls with Credit Card Balance Transfer

Watch out for two problems that many consumers face with credit card balance transfers:

1)    Running the balance up on the original card again.  What can commonly happen is after you transfer your balance to the second card, instead of keeping the first card’s balance at zero, you continue to charge to that card and the original card’s balance begins to creep upwards.  To be on the safe side, close out your first card.
2)    Poorer credit score.  Opening too many credit cards in too brief a time can lower your credit score.  If you limit yourself to doing this once or twice a year for a few years, you should not see too much damage to your credit score.