Master Your Card

Once in a while you might receive checks from your credit card company that are neatly attached to your monthly statement. They’ll urge you to use the checks to pay off another credit card that is at a higher interest rate, and you can’t argue with the ease of the transaction. Just write a check, send it to the other credit card company, and voila! Instant balance transfer.

This can be a great idea in some circumstances. Sometimes your credit card company will guarantee a really low interest rate on the balance transfers for the life of the balance, meaning no matter how long it takes you to pay off the balance on the transfer it will always be at the low rate even if interest rates rise for everything else. That is, of course, as long as you pay as scheduled because missing a payment will probably result in a huge interest rate increase.

Here are some instances when it makes a lot of sense to use a balance transfer check:

1. You have another credit card that is at a low introductory rate or delayed interest program, and it’s about to expire and you don’t have the cash to pay it off.

2. You have a few credit cards with high interest rates (like department store cards) that you would like to pay off and close, and the balance transfer will be at a lower interest rate.

3. You want to simplify your finances by consolidating some debt, and the balance transfer offers a comparable or lower interest rate to the other accounts you want to consolidate.

A balance transfer is essentially a form of debt consolidation because you’re moving the balances from one or more accounts onto one account. Some people find that this helps them pay down their debt faster because they can focus on one payment every month instead of several payments scattered throughout the month.

You can’t really argue with the mathematics behind a balance transfer if the checks offer a really low interest rate.

Here are some things to be aware of before you take advantage of a balance transfer check:

1. Oftentimes the interest on a balance transfer check starts immediately, because some credit card companies treat the checks like cash advances. This means there is no grace period on the interest accumulation, so it costs you money right away to use the checks.

2. The interest rate on balance transfer checks is not always attractive. Read the fine print and make sure that you aren’t paying off accounts with a check that will wind up costing you more in the long run.

3. You can’t write the balance transfer check for more than what your available balance is. In other words, the credit card company isn’t giving you carte blanche to spend as much as you want. If you write a check that exceeds your available balance you’ll wind up with a ton of fees, at the very least. The worst case scenario is that the check is rejected and you get huge fees from both credit card companies.

4. Some accounts have prepayment penalties. In other words, if you use a balance transfer check to pay off a small loan that has a prepayment penalty attached, you might wind up paying more in fees than you will save in interest charges.

If you make sure you understand the terms and conditions of the balance transfer check then you’re poised to make an educated decision regarding your situation. If it makes good financial sense to use the balance transfer checks to pay off some higher interest debt, go for it.

Don’t consolidate just for the sake of consolidating, though. You want to make sure that you aren’t putting yourself into a worse financial situation by using a balance transfer check. While these checks can really help some people get their finances in order, the checks can also make things a lot worse if they don’t lower your overall interest paid.