The Merits of Balance Transfer Credit Cards

by Jeff Wuorio

Dear Money Matters,
Is it better to transfer all credit card debt to one low-rate card or keep it on several low-rate cards?
Justine

Dear Justine,
Yours is an intriguing question, particularly these days when offers for low-interest credit cards are virtually everywhere you turn. However, no matter how tempting or accessible, it's generally best to limit your cards as much as possible.

The answer is certainly no from a purely organizational standpoint. For one thing, if you spread out a significant amount of debt over several credit cards, that mandates much more attention on your part to make certain you pay every one, every month and on time. Moreover, as you're probably aware, all credit cards with low "teaser" rates only hold those bargain interest costs for so long. After that, they spike up, often significantly (several cards, in fact, soar to roughly 24 percent interest). Again, that puts the onus on you -- if you fail to pay off any card before the teaser rate heads south, you may be staring a credit monster square in the face.

Additionally, going with several credit cards to tackle a significant chunk of debt really has no impact on your month-to-month payment obligations. Break it down -- putting $3,000 of debt on three zero-interest teaser cards that last six months means three monthly payments of $167 if you want to pay off the bill before the interest jumps. Stick the same $3,000 bill on one card and your monthly payment is $501 -- almost the same total obligation down to the penny. And, again, you only have to look after one payment (and one monthly stamp and one envelope) rather than three.

The final potential snarl to spreading debt among several low-rate teasers is what can happen after -- heaven willing -- you've paid off the entire debt. Although it's always in your best interest to cancel cards you no longer need, far too often we simply forget that we have operable credit cards around. Not only can that result in a surprise annual charge for a card you've ignored for months, it can also affect your credit score. Credit parameters suggest that Americans on average have five bank cards -- anything greater than that can lower your credit score because it suggests you may be juggling more debt than you can reasonably manage. And that can derive from credit cards that are used and forgotten, even if you've not charged a dime on them.

However, opting for one credit card doesn't mitigate the importance of paying down your debt as quickly as possible. No matter if it's one teaser card or five, the second that the low intro rate wilts into oblivion, you're running up potentially exorbitant charges.

The only foreseeable scenario I can think of that supports more than one credit card is an unusually large amount of debt that one card simply cannot accommodate. If that's the case, multiple cards may be unavoidable, but be prepared to pay down your debt as quickly and aggressively as possible, since you don't want to run the risk of carrying a large balance on a card or cards that jump into the high double digits in interest charges.

Return to our Articles Section.

This article was written by Jeff Wuorio, BankRate.com "Money Matters" Writer.