Credit cards probably carry the highest interest rates of any debt instrument you will ever use in your life. Every increase in interest rates means you will be paying that much more in interest and that much less will be available to pay off the balance of the debt. If you’ve been thinking about moving all of your credit card debt onto one card with a lower interest rate to save money, then you are on the right track. But there are hidden dangers to watch out for when you do these balance transfers. Make sure you read all the details of your new credit card agreement before you commit yourself to a transfer. It’s not safe to assume that you will save money if the interest rate is lower, because there are usually fees associated with a transfer.

What fees should you watch out for? Most credit card companies now charge a balance transfer fee every time you move money from another credit card to your new card. This is typically 3 or 4 per cent of the total amount of the transfer. It doesn’t matter if you do one large transfer or several smaller transfers, you will still pay the fee. They formerly would cap the fee at around $75 so it was to your advantage to do one large transfer instead of several smaller ones, but that cap is hard to find anymore. And there is a minimum fee amount, usually $10, so it costs you more if the amount you are transferring is unusually small. The fees will be added to your new balance, so you must calculate them in advance to make sure you are not going to be over your balance limit. Going over your balance limit would of course also generate a fee, and if you are not aware of it, it can be very expensive, since some cards charge you for each day you are over limit. If you have a special introductory interest rate and you go over limit, then you have just invalidated your introductory rate and will default to a much higher rate. And interest is charged on all of your fees as well.

There are other fees that you must watch out for on your new card. Don’t assume that your new card doesn’t have an annual fee because your old cards didn’t. An annual fee would be charged on your very first bill. And if you are used to paying your bills by phone, watch out for a telephone payment fee. The internet has made it easy to pay credit card bills online to avoid these fees and you won’t have to worry about a payment getting lost in the mail.

Although I have referred to these fees as hidden, they all must be spelled out in your credit card agreement for them to be legally charged. So make sure you read everything that comes with your card and ask questions if anything isn’t clear.

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