When Are They a Good Deal?

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Editor’s Note: This story originally appeared on Living on the Cheap.

I once had a friend who bragged about never paying interest because she shuffled her credit card balances around whenever she had a 0% balance transfer offer. What she didn’t realize was that by not paying off the debt, she was actually wasting time (and money), since a balance transfer fee was tacked on each time. The result was a few more lines of credit with the potential to get her into more trouble.

Of course, balance transfers can be a smart credit move if you do the calculations, and then get the debt paid off before the introductory rate expires. Here’s how to decide if you should take or toss the next offer you get.

1. See if the 0% interest period is long enough for you to pay off the balance.

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Some offers might be for six months; others for 18. Whatever the number of months, divide your balance by it, and see if you could reasonably swing that monthly payment. Don’t forget to tack on the balance transfer fee, which is usually about 2% to 3% of the total balance.

2. Consider your current situation more closely. Is your interest rate sky-high?

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Can you pay off the card if you really tried, or are you struggling to make the minimum payments? If you feel like you’re on a road to nowhere because your principal never budges, then a balance transfer could be a good move for you. But you must be disciplined in your payoff plan.

3. Know what will happen if you don’t pay off the bill before the introductory period ends.

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Be sure you understand what the new card’s interest rate and other terms will be. You don’t want to open a new account that’s not beneficial to you in some way in the long term, so walk away from cards that have a high interest rate or annual fee after the introductory period.

4. Consider what happens if you are planning to apply for a mortgage or car loan anytime soon.

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If so, you should refrain from opening up new lines of credit, since doing so will temporarily lower your credit score. A lower score could affect the interest rate you’re offered for the loan, which will translate into far more money over time than you’d be saving with a balance transfer.

5. Use an online calculator to really number-crunch your decision.

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If you left the balance where it is, how much interest would you end up paying over the same period as the balance transfer offer? Then, compare that amount to the principal plus the fee that’s required for transfer. If the fee is more than what you would pay in interest, it’s not a good deal.

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