The best advice I can give about credit cards is not to carry a balance – pay it off every month, and then you never pay interest. But I know for some people, that’s not an option, at least for now. They’re already overloaded with credit card debt, and they’re just trying to find a way out of the mess.

Credit card companies know this, too, and they are more than happy to prey on your emotions when it comes to managing your debt. Trust me, they wouldn’t offer 0% balance transfers for 10 months (or whatever) if they didn’t make money off of it.

The best thing you can do to protect yourself from this is to learn to do the math (or learn to have excel do it for you).

Here’s an example from someone I know:

She has a current balance of $4,500 on a card that’s 0% APR through the end of November, and then will be set to 11.9% in December. She got a 0% APR balance transfer offer from another company that would charge a 4% transfer fee, but would keep her APR at 0% until October 2012. This seemed like a pretty good idea- she would have a 0% APR for 10 months longer, and instead of having to pay 11.9% APR, she would just have to pay a small 4% transfer fee.

Believe it or not, this NOT a good deal.

Assume she can make regular monthly payments, but won’t be able to pay the card off until Sept 2012 regardless (the last month she’d have 0% APR on the new card).

Since there is 15 months between now and then (starting with the July payment) she would need to pay $300/month, plus any interest or fees in order to get the card paid off.

If she balance transfers the whole amount, she pays a $180 balance transfer fee on top of the $4,500 she owes for a total of $4,680 in payments. This is the same whether she pays the card off two days after she transfers the balance or takes it out to the full term.

If she leaves the money on the card where it is now, she has 5 months (July-Nov) of interest free payments. That gives her a balance of $3,000 when the 11.9% APR kicks in.

Now here’s the important thing to remember- the balance transfer fee is 4% of the total balance, straight up, here and now. The interest rate of the card is the ANNUAL interest rate. It’s not 11.9% right now, its 1/12 of 11.9% each month (in this case, roughly 1% per month), and because its charged every month, its charged on the balance you have at the start of that month, not on the total you owed.

To figure out what her payments for the next 10 months would be, we use the Payment function (=pmt) in Excel. The rate is 11.9%/12, the nper (number of periods) is 10, and the pv (present value) is -3,000. This lets us know that to have it all paid off in the next 10 months, she would need to make monthly payments of $316.60. That means she will have paid $1,500 before interest, and then $3166 after interest started being charged, for a total of $4,666 dollars

So, for doing nothing, she actually “saves” $14 over doing the balance transfer, even if she doesn’t pay it all off until Sept 2012. If she is able to make any kind of extra payment at any point, she will pay less.

Balance transfers can be useful. I’m not saying they aren’t. But learn how to do the math. Make sure that you really are getting good deal.