If used right, credit card balance transfers can save cash

New Year's resolutions are supposed to be big and bold. Sure, you could resolve to alphabetize your spice cabinet in 2012, but why not shoot for something that will make a meaningful change in your life?

Reducing debt is a noble and liberating resolution, and this year, it's a common goal. Paying off debt was the third-most-popular financial resolution for 2012, up from seventh last year, according to a survey by Fidelity Investments. (Saving more came in first, followed by spending less.)

Good intentions will get you only so far, though. If you're carrying around a credit card balance with a high interest rate, getting rid of debt is even more difficult than shedding those extra pounds you packed on over the holidays. One way to free yourself from a high interest rate is to take advantage of a balance transfer offer. In recent weeks, credit card companies have sweetened these deals, offering terms that haven't been seen since 2008, says Bill Hardekopf, chief executive of LowCards.com. Some are offering 0% interest for up to 21 months.

Under the right circumstances, a balance transfer offer can save you a lot of money. For example, suppose you have a balance of $5,000 on your credit card with an APR of 15%. If you transfer it to a card with a 0% interest rate for 12 months, you'll save $750 in interest.

There are, however, drawbacks to balance transfer offers. The biggest is this: If you're really desperate to lower your interest rate, you probably won't qualify for the best deals. Credit card companies are primarily interested in customers with good to excellent credit, Hardekopf says. That typically means a credit score in the mid-700s, if not higher.

Other downsides:

•Fees. Most card issuers charge a balance transfer fee of 3% to 4%. That means transferring a $5,000 balance will cost you $150 or more. To make the transfer worthwhile, you'll need to save more than that in interest.

•Take-no-prisoners terms. Don't sign up for a balance transfer deal unless you're confident you can afford at least the minimum payment every month. Make even one late payment, and your introductory rate will probably disappear.

•A high permanent APR. If you fail to pay off your new credit card before the introductory period ends, the interest rate on your remaining balance could skyrocket.

For example, Citi Platinum Select offers a 0% interest rate for 21 months on the balance transfer and new purchases, with a 3% balance transfer fee. However, once the introductory rate expires, your interest rate will range from 11.99% to 20.99%, depending on your credit rating.

For that reason, you should avoid using the credit card while you're paying off your balance, even if the introductory rate includes new purchases, Hardekopf says.

"You're probably transferring your balance because you're under some kind of financial strain," he says. "Don't be throwing dirt on yourself when you're in the hole already."

Another option for high-interest debt is a debt consolidation loan. Some banks and credit unions are offering unsecured personal loans with interest rates of 10% or less, which can be used to pay off high-interest debt.

A debt consolidation loan is like dynamite, says Scott Halliwell, a financial planner for USAA. In the right hands, he says, it can do a lot of good, but if used incorrectly, "it's pretty dangerous."

Like a balance transfer, a debt consolidation loan could leave you deeper in debt, Halliwell says. To avoid that, you need to develop a realistic budget that forces you to live within your means without using credit cards, he says.

You'll also need to create an emergency fund, Halliwell says. Otherwise, there's a good chance you'll end up using credit cards to pay for unexpected expenses, such as car repairs or medical bills.

Ideally, your emergency fund should cover three to six months of living expenses. Halliwell recommends making minimum payments on your credit cards until you've built up this fund.

Once you've reached your goal, he says, you can start paying down your debt in earnest.

Halliwell acknowledges this advice seems counterintuitive. The average bank savings account is paying less than 1% interest, while the average interest rate for a variable-rate credit card is 14.56%, according to Bankrate.com.

Without an emergency fund, though, something as ordinary as a blown tire could force you to take on even more high-interest debt, Halliwell says. "I'm a big believer that you'll never get out of debt until you have cash in the bank."