Moving balance to lower-rate credit card has pitfalls


In recent months, many consumers have been switching to credit cards with below-average interest rates -- some as low as 9.5 percent.

It's an excellent way to save money. If you have an outstanding balance on your old card, you simply transfer that debt to the lower-rate plastic. Nothing could be easier.

Well, almost nothing.

In reality, moving an outstanding balance from one card to another may require a little homework to avoid paying extra for the transfer.

You could get a cash advance on the new card and use the money to pay off the old one, but that's an expensive way to move money.

Many cards charge extra for cash advances, and the interest charges begin immediately, with no grace period.

Here are two better options:

When new credit cards are issued, some come with "transfer forms" to be used for this purpose. These transfers often carry no fees and charge the same interest rates as on an ordinary purchase.

Some cards also issue "convenience checks" that can be used to pay off other debts. However, some cards treat these $H transactions as cash advances, with higher fees and interest rates.

"It's best that the consumer check with the bank they are applying to and see what their policies are," said Mary Beth Butler, spokeswoman for Bankcard Holders of America, a consumer group in Herndon, Va.

After you have paid off the higher-rate card, the next step is to close the old account.

Those procedures also vary from bank to bank.

One thing you should do, however, is put the request in writing and ask for a confirmation letter once the account is closed. Remember, a credit-card account is not automatically closed simply because you pay off the balance.

Also, ask the card issuer to notify all credit-reporting agencies that the account is closed.

If the agencies are not notified, the account may remain on your record, and that could hurt your chances of getting future loans.

When reviewing loan applications, many lenders take into account any credit that is available to you, even if the credit has not been used.

Another point to remember: If you close your account, be ready to pay the full balance. Most card issuers require full payment once you close out.


Beginning April 30, anyone who wants a free copy of his or her credit report can get one by writing TRW Information Services of Orange, Calif.

TRW said in October that it would begin giving one free credit report per year to anyone who requested one, starting this year. But the company only recently set a start-up date.

TRW is the only credit-reporting company offering free reports. The others charge anywhere from $5 to $15, depending on the state in which the consumer lives. But if a person is denied credit because of a bad report, he or she can demand a free copy of the report from the agency supplying the information.

Details on how to order the report, including the address, are promised soon.

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