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Heading into the summer, you may be in the market for a balance transfer credit card to help you shift some of your debt to a more affordable interest rate. Lots of consumers have questions, though, about which kind of plastic is best for doing a balance transfer? What benefits should you shop for, and what pitfalls need to be avoided?
There are a number of cards to choose from, and it can be a bit mind-boggling to decide. Here are some things to consider before you apply, so you can get the most out of your next balance transfer.
What are Your Balance Transfer Needs?
With any financial decision, particularly one that involves shopping for a product like a credit card, you have to base it on your own unique situation. What one person needs and wants might not be the ideal fit for you. Start by identifying the key reasons you believe you need a balance transfer. Here are the top three reasons that I think apply to most people:
1. You are paying high interest on another card and can save a considerable amount by transferring that balance to a more affordable card.
2. You have a chance to leverage a really generous introductory offer from a card company, and save cash without getting yourself into more debt.
3. An emergency or unexpected expense has forced you to max-out your plastic, and you want to shift that balance to a card that will make it easier to pay it off faster.
Read the Terms and Conditions
Always read the terms and conditions thoroughly. Here’s what you should look for:
- The balance transfer rate. If it is an introductory offer, figure out when the introductory rate kicks in and expires, and when the on-going interest rate kicks in. Be sure you don’t violate a rule that could cause you to lose your cheap introductory rate as a penalty. With certain issuers, if you make just one late payment – even if you are only an hour past the deadline – you can lose the 0% introductory rate and the on-going rate will go into effect immediately.
- The balance transfer fee. If you check the terms and conditions, balance transfers usually come with a one-time fee of either $5 or a percentage of the total balance transferred, which is usually 3%. The banks will use the greater of the two numbers. If you’re charged 3% for a transfer, that tacks on a charge of $45 ($1,500 X 3%). Even with the fee, you’ll still save about $225 over a year’s time.
- Time the transfer carefully. In some cases, it takes a month or more to get approved for a new credit card with a balance transfer offer, so in the meantime, be sure to keep paying your old card balance.The same goes for paying off the transferred balance before your introduction rate expires. Don’t wait until the very last minute, because there could be delays in processing your payment. It is really easy to forget a deadline a year or more out. To keep that from happening, put a few reminders in your calendar. I would suggest putting them in once each month, and then a few throughout the last month before it expires.
Don’t Base Your Choice Only on the APR
A common fallacy is that you should always select the balance transfer card with the lowest interest rate, but that depends on your individual situation. Sometimes paying 2.99% instead of 0%, for example, may suit you better.
That’s because you may get a valuable trade-off of more time before the introductory rate expires. What if you are changing careers, for example, and expect to be making a lot more money a year from now, but not until then?
In that case a 0% rate for six months may not work as well as a 2.99% rate for 15 months. Trading a higher rate for a longer repayment period in that situation makes sense. You’ll still have a low rate when your income grows and your ability to repay the transferred balance gets easier.
Types of Balance Transfer Cards
Rarely is it wise to do a balance transfer unless you are offered a special introductory rate. Why pay a standard rate of interest when it is possible to shop around and get a rate as low as zero percent? One reason, of course, could be that your credit rating is not high enough. Once your credit has improved, it will be much easier to qualify for a balance transfer credit card with great rates and a longer repayment term.
Here are the different types of balance transfer credit cards you can apply for:
- Interest-free balance transfer cards. These are going to be the most commonly applied to credit cards, that offer 0% APR for an introductory period. These can be as long as 21 months, like Citi® Simplicity Card - No Late Fees Ever.
- Credit cards with no balance transfer fee. These cards may or may not offer an introductory rate for the balance transfer, but do not come with a balance transfer fee. You will typically save more by getting a card offering 0% interest on the amount of the transfer, but if you can’t get approved for one offering those great rates, this would be the next best option. Chase Slate® is actually the only card on the market waiving the balance transfer fee (within the first 60 days) while also offering 0% intro APR on purchases and balance transfers for 15 months. (The ongoing APR is 15.74% - 24.49% Variable.)
- Credit cards with a low, on-going APR. These will be credit card offers that don’t offer any bells or whistles, such as an intro rate or rewards. For example, the Simmons Bank Visa® Platinum Card comes with 7.25% variable APR on balance transfers, but also has no balance transfer fee.
Always compare your top choices before you apply. If you’re paying 18% interest on a balance of $1,500, that adds up to approximately $275 a year, or nearly $25 a month.That’s just in interest charges and doesn’t count even a penny towards paying off the actual balance. Transferring to a credit card that offers 0% APR on balance transfers for 12 months or more can save you extra money that can be used to pay off your actual balance.
* Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.