Playing the Balance Transfer Game

If you're carrying heavy credit card debt, playing the balance

transfer game can save you serious money. The trick is to take advantage of "teaser" rates and grace periods by continually shifting balances from higher- to lower-rate cards. If you have the energy and discipline, this strategy can serve as a quick and reliable source of low-cost loans for your business. But be careful: it can also end up a time-consuming distraction.

Take advantage of teaser rates. Teaser rates are introductory interest rates that last for a limited time — usually three to six months. These rates are often quite low. By transferring current balances to these cards from cards that charge 15 percent or more, you can potentially save a lot of money.

Be aware, however, that banks usually treat balance transfers as cash advances. While policies vary from card to card, cash advances often carry fees that may be calculated as a percentage of the entire amount transferred. Cash advances also typically accrue daily interest until paid, without a grace period. That could cost you some real money if the balance that you are transferring is large. However, fees are sometimes waived for introductory or promotional balance transfers.

You should also look out for flat "balance transfer" fees on top of any transaction percentage charge. The point is: know exactly what it will cost you to make a balance transfer. Read the fine print or ask company representatives about any charges before going forward.

Work the grace periods. To take advantage of grace periods, you need to pay or transfer balances in full by the payment due date. Typical grace periods run 25 days. Interest accrues on any outstanding balance after that point. Interest on purchases within the current billing cycle isn't charged until the next cycle. And no interest is charged on balances paid during the current cycle.

Many credit cards do not offer grace periods. They allow banks to start charging interest on the day purchases are made or the day they are recorded. Avoid these cards.

Don't just pay the minimum. Regardless of how many transfers you make, you'll have to make payments on your balance at some point. But don't just pay the minimum.

Minimum monthly payments are the smallest amounts payable to maintain good cardholder standing. Banks love minimum payments because they rarely address the balance principal — they simply chip away at accrued interest. In this way your outstanding balance continues to generate income for the credit-card lender. Minimum payments can extend the practical life of credit card loans by months and even years, depending on the size of the debt.

Don't use credit cards as a long-term strategy. While credit cards and balance transfers may be a cheap and easy approach to financing in the short run, they are not a good long-term strategy. Explore all your other options before embarking on a credit card financing scheme. Beyond the potential financial pitfalls, the energy and time involved in dealing with credit card companies to stay one step ahead of rising interest rates may not be worth the effort.