Last weekend as I was watching TV, a commercial caught my attention. Typically, when a commercial comes on I either change the channel or ignore it, but for some reason this one caught my eye- not because it was the coolest commercial or anything like that. The ad basically was one that dealt with transfers of credit card balances from one charge card to another. What caught my attention was the fact that you go to their website, put some information in and within a minute they tell you what credit card you can transfer your existing charge card balance to. Technology is wonderful when it is used correctly; however, when it’s used improperly it can cause you all sorts of aggravation. I bring this up because it seems we live in a world that believes that faster is better. In today’s world, you can instantly be approved for credit. You can even get approved for a mortgage within minutes. These are all wonderful if they are used properly. Unfortunately, I believe too many people don’t take the necessary time to think these decisions through and as a result, they make serious financial mistakes.
As far as I’m concerned, I have no loyalty to a bank or any financial institution. After all, they don’t have loyalty to me; why should I be loyal to them? My philosophy when it comes to any sort of banking relationship is if you can do better, why not switch. The same thing applies to transferring your existing charge card balance to a new charge card. If you can do better why not transfer it. The key, however, is to actually make sure you can do better and that you take the necessary time to think through your decision. Just because you could be approved within minutes doesn’t mean that it is the right thing for you.
When it comes to switching charge cards, it is important to recognize that not all charge cards are the same. Not only are the interest rates different, but also how interest is calculated can be significantly different. In addition, there are fees and costs as well as grace periods, which also differ. As far as I’m concerned, before you get a new charge card or transfer your existing balance into a new charge card you have to review these items to make sure you’re improving your situation as opposed to going from the frying pan into the fire.
Unfortunately with charge cards, too many people focus on the rewards as opposed to the terms of the card itself. It sort of reminds me of what happened 30 to 40 years ago in the banking industry. Back then if you opened an account, many banks offered perks such as a free toaster oven. Unfortunately, people focused on the free toaster oven versus the interest they were receiving on their account. It is exactly the same way today. People are focusing on the rewards their charge cards offer as opposed to the financial terms on the charge cards such as interest and fees.
There is no one charge card that is good for everyone. Everyone’s situation is a little different and the key is to have a charge card that matches your individual situation. Issues such as whether or not you carry a balance and how much you use your charge card are important. After all, with some charge cards now having fees as much as $500 per year, if you don’t use your charge card that much, it doesn’t matter what the perks are because they won’t offset the cost of the charge card. If you pay your charge card off every month, the interest rate that you pay on the balance is not that important but the grace period would be extremely important. The bottom line is that you have to know how you use your charge card to make sure you select the proper one.
Am I in favor of transferring credit card balances from one charge card to another? Absolutely — if you can truly lower your cost of borrowing – why not? After all, I always say, the money you save looks better in your pocket than it does in anyone else’s. However, you must proceed with caution to make sure you understand what you’re getting involved in and what costs you will incur. Let’s not forget that many people refinanced their mortgage because of lower interest rates; however, because of the various fees and costs involved, they didn’t improve their financial situation. In fact, many people were in worse shape after refinancing than before. Therefore, if you are thinking about a new charge card or transferring your charge card balance, just because you can get an answer within a minute doesn’t mean you should only spend a minute analyzing the information and making the right decision.