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credit & debt

A Catch to Balance-Transfer Deals

That special low rate credit-card companies offer usually only lasts for a short time, doesn't apply to new charges and sometimes comes with a big fee.

My bank just sent me an offer to transfer balances from my other credit cards to my card from the bank at a 0% rate. I have a $2,800 balance on another card I've been trying to pay off, and I think that this might help. But I'm worried that there might be a catch. Is there?

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There's usually a catch when it comes to special credit-card deals. But if you read the fine print, you can still make the most of the low rate -- which can help you climb out of debt.

Balance-transfer offers generally come with an expiration date -- in most cases, the rate jumps after six months or a year. Mark that date on your calendar and pay the entire balance before then. And don't wait until that month's bill arrives to make your last payment, says Scott Bilker, founder of DebtSmart.com and author of Talk Your Way Out of Credit Card Debt. If the offer expires on February 1 but your billing cycle ends on February 20, for example, you'll get charged the interest until the 20th. Instead, pay off the balance the month before the deal ends.

Also, these special rates usually don't apply to new charges or existing balances. Cards usually charge one rate for the transferred balance (0% in your case) but a higher one for previous balances and new purchases. So don't make new charges and pay down any existing balance on that card before you transfer other balances onto it. If your payment doesn't cover your entire balance, it's generally applied first to the lowest-interest portion of your card, then to the higher-interest portion, Bilker says. Say, for example, you have a $2,000 balance transfer at 0% and $1,000 in new purchases at 18%. If you make a $1,500 payment that month, it will be applied toward part of your 0% balance, leaving you to pay 18% interest on your new purchases.

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Make sure, too, that the transfer deal doesn't come with big fees. Some levy a 3% fee on the transferred amount, which would cost you $84 on your $2,800 balance. Keep searching for another balance-transfer deal that doesn't include the fee so you'll have more money to pay down your debt. Or call your other credit-card companies and ask for their best balance-transfer deals. If you have a good credit record, you could have several options.

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