It’s now possible to get balance transfer cards with as many as 18 or even 22 months interest-free. If you’ve racked up a lot of credit card debts, then transferring your balances to one of these cards could be a great way to consolidate your debt. Plus, you’d have all those months interest free to repay or at least pay down your debt. But important things exist you need to know before you rush off to apply for one of these cards.

It’s not the same as paying off your debts

There are definite benefits to transferring your credit card debts to a 0% interest balance transfer card, but it’s not the same as repaying your debts. All you’re really doing is moving one set of debts to a new card. Here’s an example of what this could mean. Let’s suppose you’ve been paying 13% interest on a $2000 credit card debt. In this case, you’d have to pay $347 monthly for 6 months to repay the debt. However, if you transfer that $2000 to a 0% interest card your payments would be just $334, a savings of $77 in interest. This means the only real benefit from a balance transfer is the money you’d save over the long haul – assuming you repay your entire balance before your introductory period ends.

It would make your financial life simpler

It can be tough trying to keep track of multiple payments that are all due on different days of the month, and that have different minimum payments. Transferring their balances to a new, 0% transfer card would mean remembering just one payment a month. This should definitely make your financial life simpler.

You’ll be charged a fee

You’ve probably heard the old expression that there is no such thing as a free lunch. Balance transfers aren’t free, either. You will almost certainly be charged a balance transfer fee, which likely will be a percent of the amount you’re transferring. In the past, transfer fees were capped but this is no longer the case. A typical fee this year is 3%. This means if you were to transfer $10,000, you’ll immediately be charged a $300 fee. You’ll need to calculate how much interest you’d save versus this fee to know if the balance transfer would really make sense.

That great 0% interest rate will expire

Unfortunately, that great 0% interest rate won’t last forever. It will eventually expire. This could be six months, 18 months, or even longer. But at some point, you will see your interest rate jump up, probably to something like 12% to 18%. If you haven’t paid off your balance before your introductory rate expires, you could end up paying more interest than before you made the transfer. Also, if you are late in making a payment or miss one, that great 0% interest rate will evaporate, and you’ll automatically be charged the higher rate.

Be careful with new purchases

That 0% introductory interest rate may not apply to new purchases as they may not be interest-free. Be sure to read the fine print as the rules of some credit cards stipulate that just the balances you transfer will qualify for the 0% rate, while new purchases will be charged the regular APR. Other cards will apply the 0% interest rate to new purchases, but maybe for just the first six months.

You could transfer other debts

One of the common misconceptions is that you can only transfer credit card balances. The fact is you may be able to transfer loans for appliances, cars, furniture, and other monthly installment payments. The way this is done is by using checks from the bank that issued the balance transfer card.

Determine how payments are allocated

Here’s where things get a bit complicated. If you have a 0% interest on the debt you transferred and an interest rate on new purchases, you can’t tell the credit card company how to apply your payments. The credit card issuers are required by 2009’s Credit CARD Act to first apply anything above the minimum payment to the debt that has the highest interest rate. However, most credit card companies will first apply the total minimum payment to the debt that has the lowest interest rate. This could lengthen the time it takes you to repay the debt, so the best idea is probably to steer clear of using the balance transfer card for new purchases.

You need good credit to qualify

Balance transfer cards are widely available, but the ones with the really great terms are available only if you have good or excellent credit.

In conclusion

Transferring credit card debts to a new one with 0% interest for some period of time could save you significant money – but only if you qualify. But if you can get one, that could be a great way to save money and get your debt paid off sooner, meaning it might be your best option.

Do you feel totally overwhelmed by your debts? While credit cards can certainly make life easier, they can also be the path to debt hell. The problem is that they’re so easy to use. Want something? Just whip out that little piece of plastic and it’s yours – even if you can’t really afford it.

Not all debt is bad debt

Despite what you may have been led to believe, not all debt is bad debt. If this makes you feel any better, there is such a thing as good debt. The difference between good and bad debt will depend on why you borrowed the money, the type of debt, and if you can afford to pay it back. Good debt can help you do a better job of managing your finances, leverage your money and cover emergencies. Of course, if you’re not careful debt can ruin your finances and destroy your life. When is debt good debt and a positive thing in your life?

If it helps build your net worth

Your net worth is the difference between the total value of your assets your debt. A perfect example of good debt is a mortgage because buying a house will increase your net worth. Plus, it will increase in value over time so it will be continuously increasing your net worth.

When you use it to purchase something that will save you money for many years

An example of this is taking out a loan so you could weatherize your house, which will save you money by lowering your heating bills. Adding new windows to your home would fall into this same category – assuming you don’t add them just for aesthetic reasons. If some of your debt passes this test, then you could consider it to be good debt.

If you’re investing in yourself

If you’re investing in yourself to increase your earnings this would be good debt. Examples of this include borrowing money to go back to college, taking classes to improve your skills to earn more money in your current career or because they would help you move into a better paying career. A common example of this is student loans, which is a kind of good debt.

When you have an emergency

If you run into an emergency and don’t have enough money to cover it then using a loan or credit card to pay for it would be a form of good debt. Suppose your transmission breaks down and you need to be towed 10 miles to the nearest auto repair shop. This would also be a form of good debt. So, too, would be using a credit card to pay for expensive medicine your child must have but that’s not covered by your healthcare insurance.

If it’s something essential you could never afford if you had to pay cash

There are just some things in life that are essential but that we could never afford if we had to pay cash. The two biggest examples of this are buying a home and an automobile. A new car today can easily cost $25,000 or more and very few of us have $25,000 in cash available to buy one. The same holds true of buying a house except, of course, houses cost a lot more than $25,000. You’ll be doing good if you can put enough money together for a down payment on a house let alone to write a check for the full amount.

When debt becomes a harmful force in your life

Debt is bad debt when you use it to pay for nonessential items or services that do not add to your net worth and that have no long-lasting value. This includes clothing, groceries, personal items, restaurant meals, entertainment and vacations. And the more time you take to pay off one of these debts the more interest you’ll be charged and the worse the debt will become.

The biggest example of this is credit card debt. If you use a credit card with a high interest rate and make just the low, minimum monthly payments each month then by the time you have paid off the debt, the amount you will have paid in interest will likely exceed the price of the product or service you financed.

The very worst kind

Finally, the worst kind of bad debt is when you borrow money from risky lenders. Included in this group are payday lenders, advance lenders and personal finance companies. You should never ever borrow money from one of these lenders. Most are just one small step above being crooks due to their predatory lending practices.

So how do you stand?

Now that you know the differences between good and bad debt, you might want to get a piece of paper, draw a line down the middle and put your good debts on the right and your bad ones on the left. So how do you stand? If the majority of your debt is good debt you can now feel a bit better about how much you owe



. However, this doesn’t change the fact that all your debts – both good and bad – must be repaid and the next thing you need to do is create a plan for doing just this.