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A Better Deal on Balance Transfers

Kimberly Lankford

A new law means that you won't have to go through complicated maneuvers to benefit from a low balance-transfer rate.



I read about the new credit-card rules that specify that your highest rate counts first. What does that mean?

The Credit Card Accountability, Responsibility and Disclosure Act of 2009, which President Obama signed on May 22 and which goes into effect in February 2010, limits credit-card issuers' ability to raise rates, requires them to provide more complete disclosure of their rules and fees, and eliminates some misleading practices that frequently tripped up borrowers.

RELATED LINKS
The New Rules of Credit Cards
Credit Cards You'll Love

One such provision in the law stipulates that card companies must apply any payment you make above the minimum to your highest-rate balance first. This will be particularly helpful for people who take advantage of low-rate balance-transfer offers as a way to minimize their credit-card debt -- a move that Kiplinger's has often endorsed, as long as you are careful to monitor the interest rates and play by the rules.

In the past, card companies would entice customers with low rates on balance transfers, but charge higher rates on new purchases (say, 0% on balance transfers and 11.99% on new purchases). Unless you paid your balance in full, your payment would be applied to the low-rate transfer balance and then to the higher-rate portion of the bill -- meaning you'd be paying off the 0% balance while interest on the balance at 11.99% would continue to accrue. To deal with these rules, we recommended that cardholders avoid making new purchases until the balance transfer was paid off.

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The new law means that you don't have to go through such a complicated maneuver to benefit from a low balance-transfer rate. It also requires that promotional rates last for at least six months and that rules be clearly disclosed. You will still need, however, to keep track of your payment deadlines and pay off the transferred balance (or switch it to yet another card) before the promotional offer expires and the rate rises.

Card companies are expected to retaliate against these changes by offering fewer promotional rates and adding new fees. Plus, they will still be able to jack up interest rates on new purchases, as long as they give you the required notice, so continue to monitor your bills carefully.

For more information about the new law, see The New Rules of Credit Cards. Most of the new rules take effect in February 2010. For strategies to help you get the best deal on a credit card now, see Credit Cards You'll Love.

Got a question? Ask Kim at askkim@kiplinger.com.



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