Some people are reducing their credit card debt by moving their high-interest balances to new cards with promotional interest rates as low as zero percent.
The main reason: the average American household has credit card debt of $16,000.
Balance transfers are based on the general advantage that the less interest you have to pay, the more your payment goes to actually reducing your debt.
Financial experts warn of potential pitfalls, however.
Some banks charge a "balance-transfer fee" just to move your debt to a new card – as opposed to others that offer new cardholders free balance transfer fees and zero-percent interest for a limited introductory period.
Experts suggest that if you'll be able to pay off your debts within the next year or two, but you don't want to pay any more interest, a credit card balance transfer may be worthwhile for you – if there’s no transfer fee and if it comes with introductory zero-percent rate.
Motley Fool, in a USA Today report, says to know two things:
--How are payments allocated? Federal law requires that any payments above the minimum payment must be applied to the balance with the higher interest rate balance.
-- Pay a transfer fee only when it is worth it. “The typical credit card charges a fee equal to $5 or 3 percent of the amounts transferred, whichever is greater,” Motley Fool tells USA Today readers ( https://www.usatoday.com/story/money/personalfinance/2017/04/21/read-this-before-applying-for-a-balance-transfer-credit-card/100592988/ ). “This means that someone who transfers a $5,000 balance would pay $150 in balance transfer fees to take advantage of a 0 percent interest rate.”