One of the most alluring things about the best balance transfer credit card is, of course, the much lower interest rate you’re going to pay on the transferred balance. If you’re not careful, however, you can find yourself facing a number of different types of fees on your balance transfer credit cards, and in some cases those fees will outweigh your savings. You need to be smart about which credit card you pick, and which credit card you choose to transfer balances onto.

Know what the best credit card rate is

To start with, you want to carefully read through your credit card customer agreement for each and every one of your credit cards. This includes traditional credit cards such as Visa or MasterCard, but it also includes department store credit cards as well. (While most department store credit cards don’t charge you an annual fee, there are a handful that do.)

For the most part, closing your credit cards that have annual fees is just good financial sense. If you have a balance transfer credit card that doesn’t charge a fee, try to get all of your other balances over to that card. Once you’ve paid off the balances on the cards that charge annual fees, you should close them.

There are a couple of things to keep in mind about closing those cards with annual fees, however:

• Closing a card of any sort is going to hurt your credit score. There are two ways this can happen: by lowering your overall credit limits, you reduce your credit-to-debt ratio. This hurts your credit score. The other way that this can be damaging is if you’ve had the card with the annual fee for a long time. Older accounts on your credit report are worth more than newer accounts, and closing an old one will hurt your score. This doesn’t mean you shouldn’t do it, of course.
• There are some instances in which the annual fee can be made up with low interest rates. For example, if you have a $5,000 balance on a card with 15% interest and a $25 annual fee, you’re better off than if you transfer that $5,000 balance to a card with 26% interest. The benefit of keeping an annual fee card diminishes as the interest rate goes higher or your balance goes lower.

Ultimately, if you want to know if you have the best balance transfer credit card available, you need to carefully look at the agreement. Don’t just assume that the lowest credit card rate is going to be the best offer, but instead consider the whole package.

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