What is a Balance Transfer?
Balance transfers allow you to move a debt from one high-interest card to another that has lower rates, potentially saving you hundreds of dollars. Balance transfer cards are specifically designed for this sort of action—they tend to come with 0% promotional APR periods that last between 6 and 24 months. Once you’ve made the transfer, you won’t assume any more interest on your debt until the promotional period expires. This can provide the amount of time necessary to get back on track and catch up with your credit card debts. Before you choose a balance transfer card, there are a few simple things to keep in mind.
Length of Promotional 0% APR
It’s important to make a realistic assessment of the length of time you will need to pay off your debt because promotional 0% APR rates don’t last forever. Once they expire, the interest rate on your balance transfer card will increase dramatically, perhaps even exceeding the interest rate on the card from which you originally transferred your balance. Make sure to assess clearly whether or not the promotional APR period gives you enough time to fully pay off your debt before interest kicks back in.
All balance transfer cards come with a transfer fee that’s typically 3-5% of the transferred debt. So if you owe $1,500 on a credit card and are transferring that balance to a card carrying a 5% transfer fee, you will owe an additional $75 on the new card. Usually, the card will simply add this fee to your original balance so that you can pay it off over time instead of making you pay upfront. It’s entirely possible this transfer fee will exceed the amount of money you expect to save in interest, which would make the balance transfer an impractical option. There are a few cards like the American Express Everyday Credit Card, which do not carry a transfer fee if you make the transfer within 60 days after opening the account.
Is It Worth It?
If the card you’re considering has no transfer fee and you feel confident that you can fully pay off your balance before the promotional APR expires, then there’s no doubt that a balance transfer card is the right idea. Otherwise, you’ll want to calculate whether transferring your balance will save or squander money. You can do this by first taking a close look at the balance on your current card, and determining how much interest would accrue before you finish paying off the balance, assuming you keep your old card.
If this number is greater than the balance transfer fee, then you can feel confident you’re making the right decision in getting a balance transfer card. It’s also important to remember that you cannot transfer a balance between cards held by the same issuer. So before doing anything else, make sure that you’re not trying to transfer a balance between Citibank cards or from one Bank of America card to another – it just can’t be done.
Ready to start looking for a balance transfer card? You can start your research and safely apply for a balance transfer card by clicking here.