Sometimes those 0% balance transfer offers from a new credit card (or existing ones) can be quite a tempting offer, but before you go off transferring your high interest rate balance to a lower one, there are a couple of things you should watch for.

Transferring from a low fixed rate to a 0% introductory rate.

You should consider carefully if you can pay off the debt in time before the 0% offer runs out. Generally, the introductory rate leads to a much higher rate. If you already have a low fixed rate, even though you’re being charged financing fees every month, it may be better to stick with the low fixed rate – especially if you have unstable income.

Here’s an example: A relative of mine, transferred her 2.9% APR $18,000 auto loan (with 3 remaining years) to a 0% credit card balance transfer offer that last for 1 year. She figured with her income, she will be able to pay off the debt within a year, so this will save her about $1,500+ in interest.

Unfortunately things didn’t go that well. Unexpected expenses came up, and the monthly payment she was able to apply toward the loan was limited. Although 1 year is quite a long time, the 0% introductory rate expired before she was able to pay off the loan. Suddenly the low 0% rate changed to a much much higher 11.95%. Needless to say, she had to scramble to transfer the balance yet again.

Balance Transfer Fees

Here’s another balance transfer snafu to watch for. Although there are many offers out there without any balance transfer fees, there are plenty more with high fees. Generally most balance transfer fees are 3% with a minimum and a maximum fee. The minimum could be say, $50 and the maximum being $75.

So let’s say under those terms you make a $1,500 balance transfer. Although 3% of $1,500 is only $45 – because of the minimum transfer fee of $50, you will be charged for $50.

The same apply for the maximum. Let’s say you make a balance transfer of $3,000, which 3% of it being $90. Thankfully the maximum balance transfer fee is “only” $75, so that’s all you’ll be charged with. Imagine if there’s no maximum fee and you’re transferring $20,000! A whopping $600 fee!

Making purchases on a credit card with introductory rate.

This is one of the major things to watch for! If you’re not careful, you may accidentally (or unknowingly) make a charge on a card carrying an low introductory rate. Remember that when you make a payment towards a balance on a credit card, the payment will always go towards the balance with the lowest rate first!

Here’s an example: Let’s say you have $1,000 in 0% on your credit card (which has a standard rate of 8.0%). You make a $100 charge on your credit card and now you have $1,100 on your balance. You make a payment of $100 thinking you won’t be charge interest, but guess what? The payment applies towards the lower 0% rate first. So now you owe $900 in 0%, and $100 in 8.0%! Until you pay off the lower rate balance first, none of your payment will apply towards the 8.0% rate, and interest will start occurring on the $100 debt!

A way to avoid this is to watch for 0% introductory rate for balance transfers and purchases. This way, you can transfer some balance over and still continue to make purchases on that credit card!

Well, that’s all for now!

There’s actually a few more things to watch for, but none of them is coming to my mind right now… when I do remember, I’ll add ’em in!