Is a balance transfer right for you?

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NEW YORK (AP) — Holiday shoppers may already be scouting balance transfer offers for the new year.

The lure of transferring a credit card balance is that you’re charged 0 percent interest for an introductory period, which can range from six months to almost two years. The idea is that you pay down debt in that time without worrying about interest charges.

It’s a particularly attractive offer for anyone looking to manage their post-holiday bills.

But the suspension of interest charges comes with a cost.

To start, banks charge transfer fees that can be as high as 5 percent of the balance. That could outweigh any savings on interest you eventually achieve. Applying for a new credit card can also ding your credit score. The impact is minimal over time for those with strong credit histories, but it’s still something to watch if you plan to apply for a mortgage or other big loan in the near future.

The bottom line is that the benefits and drawbacks of a balance transfer can vary significantly depending on your financial situation. That’s why it’s a move that requires careful consideration.

Keep that in mind in case you run across a Facebook page called Balance Transfer Day in your research. The page is encouraging followers to protest big banks by applying for credit cards with lower interest rates this Sunday. But the page was set up by the editor-in-chief of a website that makes money off credit card applications.

If you’re evaluating a balance transfer offer, here’s what you should know:

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The Offer

As you browse the balance transfer offers on the market, it’s likely that you’re mainly scanning to see which promotion offers the longest introductory period. But there are other variables you’ll need to factor into the equation, starting with the transfer fee.

Banks typically charge a fee of 3 percent of the amount that you’re transferring, but some charge 4 percent or 5 percent. If you’re looking to transfer $10,000, that means your fees could range from $300 to $500.

You also want to make sure that the amount you expect to save in interest will ultimately offset that fee. To do this, assess how quickly you expect to pay off your balance. Then figure out how much you’d pay in interest charges over that time with your current card.

It may turn out the amount is less than the balance transfer fee.

In other cases, your current credit card issuer may try to get you to transfer balances from your other cards. The bank may present you with an option, such as a 0 percent rate for nine months or a 2 percent rate for a year. Again, the key to figuring out the best path is to be realistic about how soon you think you can pay off your debt.

The Approval

Even if you decide that you’d benefit from a balance transfer, you won’t necessarily be approved for one.

Banks use balance transfer offers to lure away customers with good to excellent credit. If you’re paying an interest rate far above the 16 percent average on cash back cards, according to Bankrate.com, it could be that you don’t fall into that category. Or you may be approved for a transfer with a shorter introductory period.

It’s also not unusual for a bank to approve only a portion of a requested balance transfer. This can happen for several reasons.

Banks are not as generous with their credit lines as they were before the financial meltdown in 2008, and the amount they’re willing to extend will vary. And if you’ve recently missed credit card payments or maxed out your cards, your credit profile may not be as strong as it was in the past.

“You can gauge what a realistic credit line on a new account would be by looking at what has happened to your financial situation,” said Odysseas Papadimitriou, founder of CardHub.com.

After you submit your balance transfer application, note that it can take a few weeks for a transfer to be processed. You’ll know it went through when the statement on the old card shows that the balance has been paid off by the new credit card company.

In the meantime, don’t ignore your old account since there might be a payment you need to make.

The Terms

Keep in mind that the regular interest rate on the new card — which kicks in once the honeymoon period is over — will still be based on your credit profile. That means the rate you’re charged could end up being on par with the one you’re paying on your current card.

Previously, the introductory period could immediately come to an end if cardholders were late on a payment.

“You could sneeze and 0 percent would become 20 percent,” said Papadimitriou of CardHub.com.

But credit card regulations that went into effect last year prohibit banks from hiking rates unless cardholders are at least 60 days late on a payment. And it’s worth noting that it would take three late payments — not two — to reach that threshold; the first missed payment makes you’ one day late and the second missed payment means you’re around 30 days late.

When browsing the various balance transfer offers, also check whether the 0 percent rate applies to new purchases. In some cases, the promotional period for new purchases may be shorter than for balance transfers.

Beyond the upfront sweeteners, you also want to check the terms of the card. When reviewing rewards programs, for instance, be sure you understand the fine print that comes with the promised points. For example, a card might promise 1 percent back on all purchases, but only after you’ve spent at least $2,500. Or you may be able to earn 3 percent back on gas, but only for the first $300 in a set period.

The same is true for sign-on bonus rewards — you most likely have to spend a certain amount within a set time to qualify.