So you've decided to take advantage of one of those balance transfer offers, and consolidate your high interest "plastic" accounts into one low interest, easy-to-pay package? It's a great idea. By lowering the level of interest that accrues to your credit card balances, even if it's only for the duration of a twelve-month introductory offer, it's possible to attack the principal of the loan and lower it substantially, bringing financial freedom into view.

But there are a few traps the banks have written into the fine print that can cost you as much money as the high interest charges you're trying to escape. Let's examine some of them so you'll know what to avoid when making your selection.

Trap number one

Balance transfer credit card offers generally fall into one of two categories. The most common carries either a 0% or very low interest rate, good for the first six to twelve months the account is open, after which the rate is raised to the standard level charged by the bank. The second type of offer carries a fairly low interest rate, not as attractive as 0% but which is good over the entire life of the loan.

That 0% interest offer generally looks pretty good, even if it is only for six months, and the most common first instinct is to jump for it. After all, you might say to yourself or whoever is listening, at the end of the six months I can always apply for another 0% introductory offer, transfer the remaining balance to the new card, and continue to pay off that principal. With so many banks offering these great credit card deals, it's possible to discharge that entire balance without ever paying a penny of interest. Right?

This is trap number one. What you may not realize or remember is that around 15% of your FICO credit score, as determined by the major credit reporting agencies, is calculated by the length of time each of your accounts has been open, meaning that opening (and closing) a number of credit cards during a short stretch of time can lower your FICO score. If this is combined with any other factors considered negative by the Big Three (for example, late payments, overdue child support, a high proportion of credit card and other loan debt as compared to income level, and so on), it can be cause for banks to refuse an application for new credit.

This trap sneaks up on you, and here's how it happens. You open a balance transfer credit card account chosen only because of the introductory offer of 0% interest for six months. Since you intend to rotate out of the credit card at the end of that time into another introductory offer, you don't bother to check the fine print.

However, during those six months, you forget to pay the phone bill while banking online and remember it a week too late. Then you find a great deal on that new car you've always wanted and, even though you know the payments are going to be a stretch, you allow yourself the indulgence and buy it. After all, you think, the credit card situation is under control with a 0% interest rate; you should be able to manage this, too.

Five months after transferring your credit card balances onto the new card, you apply for another 0% interest rate introductory offer. But this time, your application is refused because of all that new credit, the financial overextension, and the late payment. Other banks give you the same answer, and next month, your 0% interest rate jumps to something like 18% p.a. On a $5,000 balance, that's $75 per month in interest alone, and whatever steps you take now to fix the problem-returning the vehicle to the dealer, continuing to apply for a better credit card, going to the bank for a personal loan-may lower your FICO score even further and make it less likely that a lender will take a chance on you. In short, you're screwed.

Trap number two

All credit costs the borrower; that's one of those ugly but simple facts of life, just like death and taxes. If a bank is willing to advance you several thousand dollars to refinance your high interest credit cards, without charging you any interest themselves for the service, often it means there's a catch somewhere, and the most common of these catches is the balance transfer fee.

If you read the fine print on a credit card application-and you always read the fine print, don't you?-often you'll find a statement saying that a balance transfer fee of around 2-3% will be charged for such a transaction. On the surface, that doesn't seem like much, but on our hypothetical $5,000 balance, that's $100 to $150. Who wants to pay that, unless you can't qualify for a better offer?

Trap number three

This one is called payment allocation, and it refers to how banks pay off various debts accumulated under the same account number. For credit cards, it specifically refers to balances that are transferred, as opposed to balances that are charged (for example, purchases at stores and restaurants, payment of utility or phone bills, cash advances, and so on), and the difference can cost you hundreds if not thousands of dollars. Here's how it works.

With balance transfer offers, generally the introductory interest rate is only applied to that transferred balance-not to any purchases made with the card. The bank will keep separate accounting records for these two categories, and any purchases made are charged the regular interest rate that's in effect at the time the credit card agreement is signed. Cash advances, of course, are in a third category, and are generally charged an interest rate that's even higher.

Using payment allocation, the bank will apply all of your monthly payments to discharging the transferred balance first, which at 0% interest is not earning them any money, and leaving those purchases and cash advances unpaid and accumulating interest charges at those higher rates. It's a sneaky accounting trick, it earns the banks some big bucks from unsuspecting cardholders, and it's perfectly legal.

Trap number four

This final trap we'll examine concerns what happens when the honeymoon period is over and the introductory interest rate has expired. What interest rate is any remainder of your transferred balance then charged?

Most credit cards carry two different interest rates: one for purchases and a higher one for cash advances. (For some economy package credit cards these two interest rates are the same; however, cash advances are so lucrative for the banks that there aren't many such low-cost offers out there.)

Some banks define a balance transfer as a purchase. At the end of the honeymoon period, these banks roll any remaining transferred balance over into the lower of these two interest rates. More of your monthly payment will go toward covering the interest charges instead of lowering the principal balance, but you expected that in advance, right?

But other banks define a balance transfer as a cash advance, and at the end of the honeymoon period, the interest rate jumps from 0% to something like 15-24% p.a. Now much more of your monthly payment goes toward covering interest charges, leaving most of the principal untouched and accumulating even more interest. If you only make the minimum payment, which is usually around 2.5% of your balance on the statement date, and your cash advance interest rate is 24% p.a., then only one-fifth of your payment is being applied to the principal of the loan; the remainder is paying the interest charges.

Doing the math (ugh)

Which balance transfer credit card is best for you depends upon your individual financial situation. The questions you should ask yourself include:

• how big is your debt?

• how much can you afford to pay off each month?

• at that rate, how long will it take you to discharge it completely?

A handy calculator for investigating the effect of different monthly payments on different balances at different interest rates is available at http://www.fido.gov.au/fido/fido.nsf. (This is the "Financial Tips and Safety Checks" website of the Australian Securities & Investments Commission, and I like it because it includes a selection of calculators for almost every variety of loan conceivable. It's entirely possible that the U.S. government has something similar on their own websites; I simply haven't run across it yet. As a U.S. citizen, of course, I do not receive any subsidies of any sort from the Australian government.)

If your income and bills will allow you to pay off your credit card debt within the honeymoon period, then a 0% introductory offer will of course save you the most money. Citi, Chase, HSBC, Bank of America, and several other banks all offer balance transfer deals at 0% for six to twelve months, so these offers are not difficult to find. (Because banks tend to change their offers the way most people change their socks, I won't quote any details here; by the time you read this, the offer may have changed.) Even if you intend never to use this credit card again after the transferred balance is discharged, select one with a low or $0 annual fee and a low regular interest rate; remember that your selection is sending a message to the banks, so make certain your actions speak clearly!

On the other hand, if your credit card debt has reached a level that will require more than a year to discharge, a 0% interest rate may not be best, especially if the rate jumps to something above 10% p.a. at the end of the honeymoon period. For these extended payouts, a credit card with a low interest rate, fixed over the life of the transferred balance, can save you money and hassle over the long term. American Express has several credit cards that meet this description, and especially good is their Clear offer, which carries an advertising boast of no fees at all coupled with a low interest rate over the life of the loan.

Whichever path you take, by now of course you know to read the fine print-use a magnifying glass, if necessary-and make certain the bank in question does not charge a balance transfer fee. If they do, shuffle that application to the bottom of the stack and try another one. If you find you must pay a balance transfer fee to receive a decent offer, the range is 2-3%; shop around to find the lower end of the scale.

Most banks practice some form of payment allocation. The way around it is to not use a balance transfer credit card for anything else until that debt is discharged. When you receive the card in the mail, put it away, no matter how good the sale at your favorite store is. If you don't trust yourself with a new credit card-and the temptation can be really strong-try putting it in a cup of water, then put the cup in the freezer. By the time the water thaws enough for you to pry the card loose, you should have cooled down enough to remember why you put it there in the first place. And putting it in the microwave is cheating; remember, many credit cards now contain an electronic chip for security purposes, and nuking it could damage that, making the card unusable.

I hope this information is helpful.