How to Choose a Balance Transfer Credit Card

How to Choose a Balance Transfer Credit Card – Do you Read the Fine Print?

It’s hard to pass up an enticing 0% balance transfer offer, especially for those people who currently hold high balances on their credit cards. Who wouldn’t love 6-12 months of bank-paid interest? A majority of Americans pay hundreds and thousands of dollars in interest on a yearly basis, with some rates as high as 20%.

Balance transfers can be extremely valuable and can save you a lot of money in unnecessary charges. If your credit score is 700-750 or more, you may qualify for a low interest rate introductory period through your current credits card or through a new card offer.

Before you jump on the next offer you see, read the fine print…

A failure to read the fine print when transferring balances can turn into a costly mistake. Here’s what you need to know to protect yourself from falling into a worse situation.

How long is the introductory period?

By law, an introductory period must last at least 6 months. Some offers extend to 18-24 months. Regardless, credit card companies are betting on the fact that you will continue to hold a balance after the introductory period is over. Unfortunately, this is a common occurrence.

Does the introductory rate apply to both balance transfers and purchases?

Many consumers fail to read the fine print and start making purchases thinking their new low interest rate applies. Not all credit cards will offer a low rate for both transfers and purchases. Additionally, some credit companies may require you to pay the transferred amount first while your purchases are continuing to accumulate interest – in this case, your monthly payments will go toward your transferred amount and if you do not pay it off before the introductory period is over, that small purchase you made in the beginning of the introductory period may turn into a huge bill.

What is the balance transfer fee?

The average balance transfer fees are 3-5%. Calculate your fee before you apply to make sure the transfer is worth your while.

Example: You currently pay finance charges of $60 / month on your card. You want to transfer $10,000 to a new card and the fee is 5% of your balance. You were offered a 0% introductory rate for 6 months. Is it worth it?

$10,000 x 5% (0.05) = $500 à Your balance transfer fee is $500.

Your current card charges you $60 / month on your balance in finance charges. Therefore at the end of 6 months with your current card, you will have paid $300.

$60 x 5 = $300

Since it will cost you more money to transfer your balance, even though it is a 0% card, you will end up paying more in the long run. In this scenario, look for a lower balance transfer fee or a longer introductory period.

Is a Balance Transfer Right for you?

Is it worth your while to transfer your high balances? Your personal financial situation will dictate whether it is a wise decision for you. Use the above guidelines to help you decide and always read the fine print. A 0% balance transfer offer can either be a huge benefit or a huge deficit.

Comments

Got something to say?