But are prepaid cards a good idea for your kids? On one hand, they can be a convenient — and educational — way to store spending money. On the other, fees can make them more expensive than simply handing your children cash.

Prepaid pros and cons
According to proponents, loading all or part of your kids’ spending money on a prepaid card offers convenience and security — if the prepaid card is lost or stolen, the card issuer will usually reload the funds onto a new card, as long as the loss is reported in a timely manner. It can also be a great way to keep an eye on your children’s spending and help them develop good money habits.

At the same time, prepaid cards have earned a reputation for being riddled with numerous confusing fees — ATM fees, reloading fees, monthly fees and card replacement fees. These can quickly make prepaid cards very expensive, particularly for consumers who don’t pay attention to the fees before signing up for a card.

Still, we no longer live in a cash-based world. It is only a matter of time before your kids will be introduced to plastic, and waiting too long can come at a price.

“If you don’t help your kids get experience using plastic, you are depriving them of an important learning experience,” says Sandy Shore, a spokeswoman with credit counseling organization Novadebt. “Kids who don’t get their first experience with plastic until they head off to college and get a credit card often get into trouble, because they have no previous experience using plastic and budgeting for non-discretionary expenses.”

Using a prepaid card as a teaching tool
Prepaid plastic can be a useful tool for parents who want to monitor a child’s spending and teach basic budgeting skills. Teens can spend only the money preloaded on the account, so a prepaid card forces kids to keep track of spending when using plastic.

Shore recommends getting a prepaid card for your children once they are old enough to go to the mall by themselves.

“Set a spending limit for them and put their allowance or part of the allowance on the card,” says Shore. “If they are unable to stick to the spending limit, that is a great occasion to sit down and talk about what happened, and what your child can do in the future to avoid it.”

Start out putting purely discretionary money on the card and, as the child gets older, add the non-discretionary money (like lunch money) as well. That way, your kids will learn to avoid indiscriminate spending when using plastic, a skill much needed once they graduate to credit cards.

Minimizing fees
The good news is that, although prepaid cards have fees, they don’t have to be expensive. With growing competition, some card issuers have introduced prepaid cards with very few fees.

Here are two prepaid cards that feature fairly low fees and also offer online resources for financial literacy education geared toward kids and teens.

American Express PASS prepaid card: With no monthly fee and no charges to load money (if deposited directly from your bank account), the AmEx PASS card is one of the least expensive prepaid cards for kids out there. Funds can also be added via a MoneyPak purchased at a local retailer.

There is a catch, however. The first ATM withdrawal each month is free. After that, there is a $2 fee per withdrawal, so frequent ATM withdrawals could quickly turn this into a very expensive card. Still, teaching your kid to avoid frequent ATM withdrawals is a lot easier than avoiding all the other fee-incurring actions typically associated with prepaid cards.

Teens can track their purchases online and use the Money 101 online resource center to learn the essentials of budgeting. They can even become “Financially Certified” by passing an assessment test at the Junior Achievement Student Center sponsored by American Express.

Visa Buxx prepaid card: Featuring versions both for tweens and teens, the PayJr Visa Buxx card features money management tools to build financial literacy skills for kids of all ages. Choices include the PayJr Chore & Allowance prepaid card for children under 12, which gives parents and kids access to an online system for tracking chores — and the rewards for completing them. The idea is to help kids create a link between work and financial rewards.

The PayJr Visa Buxx card, meanwhile, targets teens, who can track their spending online and take advantage of financial education resources to learn about budgeting and other money management skills.

These extra services don’t exactly come free: The monthly maintenance fee for the VisaBuxx card is $4.95 per card, ATM withdrawals are $1 per withdrawal (in addition to ATM fees), plus it costs $2.50 to load money from a debit or credit card linked to the prepaid card. If you choose to get a paper statement, that will add another $2 per month.

My sister ended a bad marriage in 2007 and returned to our home state to start her life over at age 50. Her divorce decree stated she was to sign their house over to her ex-husband and that he was to refinance to be able to keep the house. He has not held up his end of the bargain, and she is still getting calls about back payments.

Apparently the last mortgage payment was June 2007, one which she mailed. Her ex also reopened a credit card and maxed it out. My sister called the bank to take her name off the card. But the bank failed to tell her to send the request by mail, so it was not done. A couple years after returning to our home state, she suffered a heart attack with ongoing complications. Of course she has huge medical bills, even though she did have insurance.

My sister has an OK job, but it is not enough to dig her out of this hole. She cashed in her retirement while she was married to this guy and that money is gone, so she has nothing to fall back on! Is bankruptcy her only option? – Patsy

Dear Patsy,

You just discovered a major glitch with divorce decrees — for debt, sometimes they don’t have adequate teeth.

Divorce decrees are formal orders from the court that set post-marriage terms and conditions for assets, liabilities, child support and the like — a “she gets this bill and the toaster; he gets that one and the blender” kind of thing. They’re terrific when both parties behave like adults and pay accordingly. However, if one doesn’t and allows an account to go delinquent, the creditor can look past the decree and instigate collection activity against the other party (in this case, your sister). Banks have that right if the loan or credit line was granted while the marriage was intact. Anyone on the account is under contract to pay.

This doesn’t mean your sister’s situation is hopeless — but she does need to need to check back in with her lawyer. By not taking care of the refinanced mortgage as he should have, her ex violated the decree. The court doesn’t view this type of behavior fondly. In response, the judge may force him to deal with the money owed by enacting a wage garnishment or property levy.

So that’s debt Number 1 — if she can get out of it by returning to the courtroom, sis will be able to brush that burden from her shoulders.

Now debt Number 2: that credit card. Your sister did the right thing by calling to have her name removed from the account. If her ex reopened it after the legal separation, it’s highly unlikely that she will be held responsible for the balances that he ran up on it. Have her contact the creditor immediately, but this time in writing. In a letter, she needs to explain that she never gave her approval for the account and that it was opened after he moved out (assuming this is so). She should also provide additional proof, such as utility statements that have been sent to his other address. She must state clearly that her name should not be on the account.

That leaves what sounds like the final debt: medical bills. Health issues can be outrageously expensive, even with insurance coverage. Your sister has a couple of options to deal with those:

1. Negotiate with the doctor or hospital. Given her circumstances, they may be willing to come down on the price or accept small monthly payments.

2. Obtain a personal loan. Her credit may be broken, but hopefully her relationships aren’t. Perhaps she can borrow from a loved one and then pay that person back at a reasonable pace.

3. Declare bankruptcy. Medical bills are a major reason people file for bankruptcy, as is divorce. If she can’t pay and qualifies to file, she can wipe out allowable unsecured debts and start fresh.

Present this information to your sister. Only she can make the final decision. What’s most important is that, while her body continues to recover, she also regains her financial footing.

Got a question for Erica? Send her an email.

My parents are trying to convince me to buy a house because mortgage interest rates are so low now. Plus, they are noticing that homes in my area have become more affordable than they were just a couple years ago. I’ve got a decent job and no debt (besides student loans), but my credit isn’t fantastic. It’s 630. My parents keep reminding me that they were dirt poor when they got their first house — and that if I wait until I have perfect credit, I’ll “miss the boat.” I guess I’d just like to know if waiting (and working on improving my credit) is the best choice. What do you think is the ideal credit score I should have before getting a mortgage?

– Aaron

Hi Aaron,

Great question! As you rightly assume, with a credit score in the 630s, you will end up paying a much higher interest rate on a mortgage loan. And that is indeed a predicament, because your parents are right: With mortgage rates at historic lows and house prices still recovering from the economic slump, this is a great time to buy a new home.

That being said, you will likely save a lot more by spending another year or so doing what you can to improve your credit score. Mortgage rates may fluctuate somewhat, but it’s probable that you will be able to improve your credit score faster than mortgage rates move up.

With a credit score as low as 630, not all banks will approve you for a mortgage, and those that do will charge you a premium of 1.5 percent or more for the loan. You can use this handy Loan Savings Calculator from FICO to find out exactly how much money that will translate into over the life of the loan amount you’re targeting.

For example, let’s assume you take out a $150,000 mortgage to purchase the house. At your current credit score, the interest rate on a 30-year fixed mortgage will be 5.103 percent (according to the FICO calculator), compared to 3.51 percent for people with excellent credit (a score above 760).

If your credit score increases by just 15 points, to 645, your interest will go down to around 4.56 percent, saving you $17,850 over the life of the loan. Bring your score above 700, and you will save more than $43,000 over a 30-year mortgage period. And if you get above a score of 760, you get the lowest interest rate available and save more than $50,000 over the life of the loan.

The interest you pay for a mortgage not only affects the cost of the loan, but also how much of a house you can buy. Let’s say you can afford a monthly mortgage payment of $800 (after covering the cost of property taxes, maintenance and utilities). At your current credit score, the maximum mortgage amount you can afford is $150,000. However, by increasing your credit score to above 700, you can afford payments on a mortgage of $175,000.

There is more to consider than just the mortgage interest rate you will end up with, however. You say that you have a decent job and no debt other than student loans — so for someone in your situation, your credit score of 630 is unusually low. Since you don’t mention why your credit score is so low, I can’t speak to your credit management skills. However, a score in that range is usually a red flag that, for whatever reason, you have not managed credit very well in the past.

If that is the case, you might run into other issues besides having to pay higher rates on a mortgage loan, if you do buy a house. Credit scores are not just useful indicators to banks, they can also be useful to gauge your own knowledge and skills when it comes to managing money in general and credit in particular.

It might behoove you to learn more about credit scores, so you can understand which habits or actions have caused your score to be so low. Once you buy a house, poor money-management habits will have much more dire consequences than just affecting your FICO score. Losing a house because you can’t pay your bills is no fun; you don’t want to invite that stress into your life.

Last, but not least, you don’t say whether you have saved up money for a down payment on a house. If you haven’t, that should be the first place to start. It will help you create habits around budgeting and saving, which are money management skills you will need anyway in your future life as a homeowner.

In sum, you’d do yourself a favor by spending at least a year tackling that low credit score before venturing into a house purchase. Again, this isn’t just about the rate you’ll be paying for a mortgage — it’s about the money and credit management skills you bring to the table. And the habits you need to improve your credit score are the same habits you will need to be able to comfortably meet those mortgage payments once you do buy a house.

Owning a house is great, but only if there is no financial struggle involved. If paying the bills is a strain each month, believe me, it’s not worth it — no matter how low those mortgage rates currently are.

Got a question for Eva? Send her an email.

I have the same first, middle and last name as my father (the only difference in our names is that I’m a “Jr.”), and this is causing me all kinds of credit report problems. I just pulled my reports for the first time, and there are all kinds of things on there that are not mine — but my dad’s. There are a couple overdue bills, a few loans for his business and some of his credit cards (and some of those cards have a lot of money charged on them). I’m freaking out, because “my” score is now 550! Why is this happening? What do I do? And is there any way I can make sure these mistakes don’t happen again? –Daniel

Hi Daniel,

Yikes. Not only is your credit score being affected by your father’s debts, but you’re privy to his personal business! I would think that he’d be upset and embarrassed to know that you’re all too aware of his troubles.

Sadly, what has been seen cannot be unseen (at least by you). However, you can have the data that unjustly lives on your consumer credit reports removed. It’s a fairly simple process. These credit bureaus must comply with the federal Fair Credit Reporting Act, and one of its key provisions is that the reports list only true and timely information.

To resolve this issue, log on to any of the major credit reporting company’s websites (TransUnion, Equifax or Experian) and click on their “dispute” page. You need to visit only one of them, as it will notify the others. Then, indicate what information is incorrect. You can also dispute the errors via mail, by writing to the bureau: Circle or highlight what is wrong on the report, write the reason it is false in a letter and include copies of any supporting documentation that you might have. The credit bureau will investigate. However you do it, since it’s a straightforward matter of false identification, it should be an easy fix.

If a business such as a bank, landlord or insurance company pulled your credit report and scores and made a poor decision about you because of your father’s data, request that a copy of an updated report be sent to them. About 30 days after your dispute, the credit reports should reflect only your credit and identification information. You will also receive a copy of the new report.

As for your FICO scores, soon after the changes are made, the numbers will jump up to where they ought to be, as your dad’s credit history won’t be muddling them. Oh, and all this is free to you. Many people think they have to pay a service to “clean up” their reports, but that’s simply untrue.

Of course you do not want to have this situation happen again, but there are no guarantees that it won’t. Sporting the same name as a relative is one of the reasons innocent mix-ups occur.

Unfortunately, there is something else that you need to be aware of — and that’s the possibility that your dad used your identification to get credit in his name. I hope this is not the case, but to find out, contact the creditors in question and ask which Social Security number is associated with the account. Ask if it was issued to you — the Junior — or to him, the Senior. If he has used your identity, at the very least add a fraud alert to your credit file. That way, future lenders must take extra security steps before granting credit.

Lastly, be sure to check your credit reports on a regular basis. Once a year is usually sufficient, but if you think that there may be some unfunny business going on, you’ll have to be more vigilant so you can correct the problems before they do real — and harder to fix — damage.

Got a question for Erica? Send her an email.

They’re known as the “underbanked” — generally low- to moderate-income consumers who may use some bank services, but often cash checks, pay bills and get small loans elsewhere, often with hefty fees attached.

Why the underbanked are attracted to mobile
The Fed study, called “Consumers and Mobile Financial Services,” shows that the underbanked are not underphoned. Results show 91 percent of those identified as underbanked have mobile phones and 57 percent have smartphones, whereas 87 percent of U.S. consumers have mobile phones and 44 percent have smartphones.

The numbers show that the underbanked are more likely to use mobile banking services than the average American. Twenty-nine percent of underbanked respondents used mobile financial services in the past year, compared with 21 percent of consumers overall. They’re also much more likely to use their mobile phones to transfer money between accounts than the average user — 55 percent, compared with 42 percent across the board.

That growing demand represents big opportunities for lower-income consumers who are starting to get more notice from the financial industry, as well as for banks trying to win new customers.

“Up until now, financial providers haven’t focused on the unbanked and underbanked when they think about financial services,” says Kate Marshall Dole, analyst with the Center for Financial Services Innovation.

Rather, they’ve concentrated on hooking more affluent consumers.

But those shunning banks make up a significant portion of the population. The Federal Deposit Insurance Corporation (FDIC) puts the number of unbanked, (those who have no access or don’t want access to traditional banks) and underbanked together at about 25 percent of consumers (that’s about 30 million).

The Fed study represents the first large-scale research examining how unbanked and underbanked consumers interact with mobile devices.

Among its findings:

• 17 percent of the underbanked report having used mobile payments in the past year.
• 62 percent of the underbanked who use mobile payments have used that method to pay bills.
• 10 percent of the completely unbanked used a mobile banking platform (such as digital wallets) in the past 12 months, and 12 percent have made a mobile payment. How are those without bank accounts able to use mobile banking? Mobile banking in the Fed report includes using a mobile phone to access a bank account, credit card account or other financial account, such as a payroll card or prepaid card (which do not require bank accounts).

Marketing to the underbanked
The fact that the underbanked are early adopters of mobile financial services presents an opportunity for payment services companies. Yet the mobile wallet solutions that will work for the underbanked will need to let users load money directly into a mobile account, CFSI’s Dole says. If a mobile wallet is based on accessing existing bank accounts, it won’t be meaningful for the underbanked.

Bill payment firm TIO, for example, is rolling out the first phase of its TIO mobile wallet, called TIO MobilePay, which is targeted specifically to the underbanked, says Rob Goehring, chief marketing officer at TIO.

The company already has in-person representatives and 60,000 kiosks in retail centers that work like reverse ATMs. Shoppers walk up to the customer-service person or the self-service machines, find their bills and pay with cash, checks or prepaid cards. The addition of the wallet app connects customers’ phones to this way of paying.

The ability to pay a bill instantly, without using a bank account, is often crucial to the low- to moderate-income people that make up the majority of the underbanked, Goehring says. With digital wallets like TIO, users can add prepaid cards to their wallets and use the money loaded onto them to pay bills — no bank account necessary.

“Many of them get their paycheck, they go to a paycheck casher and get cash. They have to pay their cell phone bill that day or it gets cut off. Or they have to pay the utility bill to keep the water on. …Being able to pay instantly and get up-to-the-minute account updates — all of these coming together have created an interesting opportunity for this [mobile] wallet,” Goehring says.

Goehring says the company had been watching the growth in mobile phone and mobile banking use among the low- to moderate-income sector for years.

“So many of [the underbanked] are skipping over this in-home broadband Internet experience and jumping straight to these high-speed smartphones,” Goehring says. “Why pay the cable provider for high-speed Internet if you can get it through your smartphone and your smartphone’s always with you? And that’s what you use to communicate with your family, with your employer who’s going to call you into work tomorrow or not.”

Proceeding with caution
Among the unbanked and underbanked is a disproportionately large percentage of Hispanics, according to the FDIC. Meanwhile, the Fed study found that online banking users (those who have traditional bank accounts and access them via computers) are predominantly non-Hispanic whites (73 percent), while Hispanics and non-Hispanic blacks make up just 12 percent and 8 percent, respectively, of online banking users.

Marisabel Torres, a policy analyst at the Hispanic advocacy group National Council of La Raza, says previous studies have noted several trends among Hispanic consumers: They are heavy users of smartphones (instead of computers), most don’t use online banking and there’s a high level of mistrust about banks in general.

Torres, whose work centers on finding safe and affordable banking products for Hispanics, says mobile financial services hold promise for people who have been left outside mainstream banking. But there are security issues that need more uniform standards, she says, such as who’s responsible if personal information is stolen. The underbanked are already heavy users of prepaid cards, which don’t require having a bank account, but also may not have the federal protections against loss and theft that credit cards have.

“Without uniform standards, it is a space where people could easily be taken advantage of,” Torres says.

Torres says transparency will be critical to entice this population that is fed up with “gotcha” fees and have little trust in mainstream banks. Yet if mobile banking solutions get people away from fee-heavy check cashers and payday lenders, the underbanked will benefit.

“The skepticism is healthy,” Torres says. “If it’s part of a larger strategy to get them connected to legitimate products, then I would say it can be positive.”

When do you think it would be OK to add someone to your credit card? My 17-year-old daughter Kaya is very responsible. She has a babysitting job that she goes to every weekend, and she’s saved more than $1,000, which she keeps in her savings account. Kaya is also in school, with a straight-A average. I’d like her to build her own credit so she has it when she moves out. My credit is perfect, so I’m considering adding her to one of my cards. How soon after she gets her card will she have her own score? – Gail

Hi Gail,

I understand your motive in wanting to help out your obviously wonderful daughter. However, I’m not a fan of sharing credit and rarely recommend it. While adding another person to a credit account as an authorized user — which is what I assume you’re referring to — can work out just fine, it also has the potential to be a disaster.

Building a great credit rating takes considerable time and effort. Since you’ve done that, you ought to protect it carefully. That means being the sole proprietor of your credit cards.

If you were to make Kaya an authorized user, she would have the same rights to charge with your credit card as you do. She could run the card up to its limit, and you would have no way to stop her or force her to repay. Would Kaya do such a thing? Based on her past and present behavior, it sounds unlikely. But I still wouldn’t be willing to give anyone that kind of power over my credit and money — especially someone so young. Though she’s been responsible up until this point, teenagers tend to be capricious and impulsive. More, they don’t possess all the financial acumen that you have as a fully grown and experienced adult.

As you mentioned, if you do put Kaya on your existing account, she would start to generate a credit history in her own name. That could work to her benefit. On her credit report, that trade line would have an “A” next to it indicating that she’s an authorized user. All of the account activity, no matter who charges or pays, will be added to both of your credit reports, and a credit score will be generated for her. So even if she doesn’t use the card at all, she would have a credit rating based on what you do. If you continued to be the awesome cardholder that you are, she’d come out ahead. Then again, if you falter (even perfect people do have mishaps!), she’ll suffer.

Another safer option exists, though. When Kaya reaches the grand old age of 18, I suggest she apply for a secured credit card in her name only. This way, she can put some of her considerable savings to good use. Many banks will extend a credit card to someone who doesn’t yet have a credit history if they deposit a few hundred dollars into a special account. Those funds will act as collateral against default. The credit lines are typically nice and small, so there’s only so much debt she can get herself into.

In the meantime, take this next year to teach Kaya about money and credit management. Show her how you pay bills on time and the way you stay out of debt (when so many others don’t). Explain what a great credit report looks like and how it can help her when she eventually moves out and needs to appeal to a potential landlord. Then, when she gets a credit card, she can charge with it knowledgeably and develop her personal credit history — without putting yours in harm’s way.

Got a question for Erica? Send her an email.

“Parents teach by example, and your attitude towards money is the first attitude your children will pick up,” says Mike Sullivan, director of education of Take Charge America. “If you don’t care about money and everything goes on credit cards, your kids will grow up with the same attitude.”

Are you teaching your kids the right lessons about money? Here are three bad money lessons kids often learn from parents — and how to avoid them.

1. What you want, you get. Now.
Have to have that sexy new cellphone? Can’t resist that dress marked down 50 percent — even though it’s not in your budget this month? One of the worst money habits parents can teach their kids, according to Sullivan, is that you have to have everything right away.

This is an obvious problem if your family income is limited. However, if money is not an issue for your family, this habit is even easier to fall into. Adult life involves choices, and it’s not good for kids to grow up thinking they can have everything.

“If you always buy everything right away, you are teaching your kids terrible consumer habits, which your kids will have to overcome if they are to have positive money habits in their adult life,” says Sullivan

Solution: Teach your kids to make choices

If buying a treat while shopping with your kids, make them choose between a toy, a piece of candy or ice cream — they can’t have all of them. In addition, teach them to plan ahead for larger purchases.

“Delayed gratification is the most important thing parents can teach kids about money,” Sullivan says. “Make your kids choose and understand that they have to wait for larger purchases.”

The bigger the item, the longer the wait should be, Sullivan says. For example, if your kid wants a new bicycle, put it on the calendar and explain how long it will take to save for the bicycle. Look at the calendar every day, and allow the anticipation and excitement to build.

Teaching your kids to plan ahead to fulfill their desires isn’t just a useful money habit — it builds important life skills. According to research, kids who develop the self-control to delay the fulfillment of desires grow up to be more successful as adults. In fact, self-control predicts more about how well a child will do in life than intelligence and family affluence do.

2. When it comes to money, it’s feast or famine
Parents who live from paycheck to paycheck inadvertently teach their kids that you have little control over money. If you spend money when it’s there and starve the rest of the time, you are setting your kid up for bad habits that can take a lifetime to unlearn.

Solution: Teach the power of saving

Start your kids out with a piggy bank early on and graduate them to a savings account as they grow a bit older. When they want bigger things, help them save toward part of the purchase cost, so they experience the power of saving money to fulfill their desires.

Remember: You teach by example. If savings and budgeting skills are not your forte, this might be a good time to enroll yourself in a budgeting crash course.

3. All credit is bad credit
While it’s important to teach kids about the dangers of getting into debt, it’s easy to go overboard and give your kids the impression that all credit is bad. In fact, credit instruments like credit cards, car loans and mortgage loans are an important part of adult life. Your kids will need the skills to manage these different types of credit as they get older.

Solution: Teach kids the fine art of credit management

Help your kids build credit management skills early on. To prepare them for using credit cards, give them their allowance on a prepaid card while they are still young. Since they can spend only the money loaded on the prepaid card, this is a great way to help them associate plastic with spending limits.

As your kids get into their teens, substitute the prepaid card for a credit card. Help them use the credit card like they did the prepaid card, setting a set spending limit equivalent to what they can pay off each month. Consider making your kids authorized users on your credit card, so you can monitor their spending habits and help them learn from their mistakes. Or, once they reach age 18, you can help them get a secured credit card (a card that requires a deposit in exchange for a line of credit).

I have just over $3,000 in debt on my credit card, which has a $4,000 credit limit. I’m thinking of doing a balance transfer to a card that has 0 percent interest for a year. All my debt is from emergency car repairs and other bills when I didn’t have a job.

I have a job now, and it’s my plan to transfer the money over and wipe out the debt well before a year is up. What should I do with my old card? I know it would be bad to close it, but should I make purchases on it every once in a while? Also, since I’ve never done a balance transfer before, do you have any advice for me on what to watch out for? My FICO score is in the low 700s. –Liz

Dear Liz,

Well, good for you. Balance transfers can be a great way to consolidate high-interest credit card debt and save money on interest. And paradoxically, applying for another credit card may even help raise your credit score over time, because it will help lower your debt-to-credit ratio, also called your credit utilization.

Indeed, right now, your credit utilization is very high. With a $3,000 balance on your card with a $4,000 limit, your debt-to-credit ratio is at 75 percent. Most experts recommend keeping credit utilization at around 10 percent of the credit limit and no higher than 30 percent. So the high debt on your credit card is likely hurting your credit score big time.

To qualify for the best balance transfer offers, you have to have excellent credit — ideally, a FICO score above 740. With a credit score in the low 700s, you can still get approved for some cards with attractive 0 percent annual percentage rates (APRs). Yet card issuers may start you out with a fairly low credit limit — lower than what you might need to transfer that $3,000 balance.

That doesn’t mean you shouldn’t apply. Here are some tips to guide you:

1. Pull a copy of your FICO score. First of all, find out exactly where you stand. If your credit score is lower than 740, don’t apply for the balance transfer offers for excellent credit. Instead, look for balance transfer offers for people with good credit.

2. Compare balance transfer offers. Obviously, the best balance transfer offers are those with the longest promotional 0 percent APR period. However, there are other variables to look for. Most card issuers charge a 3 percent to 5 percent balance transfer fee, so look for a card with the lowest fee.

Also, from time to time, card issuers will waive the balance transfer fee as a limited-time promotion, so look out for these types of offers as well. Right now, for example, Chase is offering a no-fee balance transfer offer on its Slate credit card, as long as the transfer is made within 30 days. That would save you $90 on a $3,000 balance transfer.

3. It’s OK to apply for more than one card. If you only have one credit card right now, consider applying for two balance transfer cards. It will help your credit score in the long run to expand your credit card portfolio, and applying for more than one card will up your chances of getting a high enough limit (between a couple of cards) to transfer all your debt. Applying for several cards will ding your credit score a little more, but as long as you continue to make all payments on time and don’t accumulate more credit card debt, the effect will be short-lived.

4. Read up on the terms. Despite offering an interest-free promotional period, card issuers make lots of money on 0 percent APR balance transfer cards. Why? Because a lot of people don’t read the terms! Here are the terms to be most alert to:

• Interest rates. Most balance transfer cards come with high APRs at the end of the promotional term, so that rate may well be higher than what you’re paying on your current credit card. If this is the case, plan to not keep balances on your new credit card after the 0 percent APR period expires.
• Penalty rates. Read up on the terms for the penalty rates on the card. Many balance transfer cards carry punitive interest rates of as high as 29.99 percent. These penalty rates can be triggered by simple transgressions, like paying the bill late. In some cases, even just one late payment can trigger the penalty rate.

Penalty rates cannot be applied retroactively to your 0 percent APR balance. However, they can be assessed to future charges, effectively rendering the card unusable for future use. So know your penalty rate triggers, and stay clear of them.

5. Know how to get to zero. Once you get your card, calculate how much you need to pay each month to zero out the balance by the end of the promotional period. Pay that amount each month, and preferably more. Keep the balance transfer credit card in a drawer, and don’t use it until the balance is paid off.

If you use the card for new purchases, it’s easier to lose track of how much you need to pay each month to zero out the balance before the promotional term expires. This is one of the reasons why people end up paying high interest rates on balances at the end of the promotional period, which often undermines savings considerably.

Instead, continue to use your old credit card for purchases, so you keep that card active as well. Just be sure to pay off the balance in full each month, so you don’t accumulate more credit card debt. Managing more than one credit card definitely takes a bit of juggling, but since it also helps improve your credit score, it can be well worth it.

Got a question for Eva? Send her an email.

I have a credit card with a $25,000 spending limit. I’ve had it for some time. Lately I find I’ve been using it more than I should, and now have $3,000 in debt. If I request my credit limit to be lowered to, say, $3,500, will this have a negative impact on my credit rating? – Dianne

Dear Dianne,

Halt! Do not reduce your charging limit. Not quite yet, anyway, as it most definitely will hurt your credit score. To understand why, you’ll need to know how such scores — FICO scores, specifically — work.

All credit scores are generated from the information on a credit report, but some of that data is weighted much more heavily than others. The most important factor is payment history, at 35 percent. Yet just below that at 30 percent is “amounts owed.” This section takes into account several factors, including your current debt on different types of credit products (like installment loans, lines of credit and mortgages) in relation to the amount you can borrow. For revolving credit instruments such as the credit card that you have, you never want to keep your balance at or near the limit. If you do, your credit rating will suffer.

Consequently, though you do owe a significant sum, you’re in a good scoring position because you still have the bulk of your credit line open on that card.

If having access to $22,000 is too tempting, rather than calling your creditor and asking to lower the line, consider first removing the card from your wallet. Still too close for comfort (because you know where it is and can grab it when you spot something awesome but unaffordable)? Pick up a pair of scissors and snip the plastic seductress into a thousand pieces. The account will remain active, but you certainly won’t be able to swipe it. That alone can cut down on impulse purchases.

After you have placed a healthy distance between you and the card, make a point of getting rid of the debt you have today. Review your budget to see how much you can promise as a fixed monthly payment. Then plug the numbers into an online debt repayment calculator to determine how long it will take to achieve a zero balance. For example, if you can manage to send about $525 every month and the interest rate on the account is 17 percent, you’ll be in the black in just six months.

When you owe nothing, go ahead and revisit the idea of a slimmer credit line. Maybe you’re right, and $3,500 or so is a far better borrowing amount for you. But before picking up the phone, make sure your proposed line is sufficient for your needs. Think ahead to what you may want to charge. Is a vacation in your future? Project for such costs as airfare, accommodations and a car rental. Or maybe you need a new laptop or other electronic thing or home appliance. Credit cards are ideal for these types of purchases because of the built-in consumer protections they offer. Total up what you think you may require as a credit line and ask for your new limit be at least twice that.

The issuer should be happy to comply with your request. Unlike increasing a credit limit, reducing it isn’t risky for them. As for what it will do to your credit score, a smaller credit line shouldn’t have an impact if you use the card but always pay off your bill in full. In fact, that’s what you should be doing — not just to have a high credit score but to avoid paying any finance fees.

Got a question for Erica? Send her an email.