The balance transfer credit card is a useful way to pay off high-interest credit card debt, but it depends on choosing the right credit card. Balance transfers can be costly if not done correctly or if using expensive credit cards. Before transferring a balance or even applying for a balance transfer card, make sure to compare credit cards to choose the best one.
Promotional Interest Rate and Promotional Period for Balance Transfers
Many balance transfer cards offer a low or zero promotional interest rate for transferring balances. The promotional interest rate will reduce or eliminate monthly financing charges on the balance transfer for a certain period of time. The absence of financing charges makes it easier for you to pay off the credit card balance. A zero percent interest rate is the best, but a low interest rate – like 2.99% – is also good.
Note: Federal law requires that promotional rates last for at least six months, but many credit cards offer promotional rates for up to 18 or even 21 months. The longer the promotional period, the better your chances of paying off the balance without interest.
Regular Balance Transfer Rate
After the promotional period ends, you will pay interest at the regular balance transfer rate (which may sometimes be the same as the purchase rate). You do not want to pay a higher interest rate once the promotional period is over, especially if the promotional period wasn’t long enough to pay off the balance entirely.
Interest Rate on Purchases with Balance Transfer Card
Many credit cards offer the same promotional interest rate for purchases and balance transfers, making the offer more attractive. However, the promotional interest rate for purchases can work against you. If you are accruing purchases on the card due to a promotional rate, you are working against any efforts to pay off the transfer balance.
Balance Transfer Fees
Balance transfer fees usually range from 3% to 5% of the transferred balance or a minimum of $5. The larger the balance transferred, the higher the fee you will pay. The important thing is that the balance transfer fee does not negate the interest savings you gain from transferring the balance. If you find a credit card that does not charge balance transfer fees, consider it seriously.
Do You Qualify?
Don’t assume you’ll enjoy a 0% rate just because you’re receiving an offer. Credit card companies send pre-approved offers to consumers who meet certain basic criteria. When applying, the card company will conduct a deeper analysis of your credit history, income, and other factors to determine if you qualify. There is a chance that you might ultimately not qualify for a balance transfer at the low-interest rate.
Note: In general, the better your credit history and credit scores, the more likely you are to get a balance transfer offer at a low-interest rate.
Timing the Transfer
Some balance transfer cards require the balance to be transferred within a specific timeframe, such as 60 days from account opening, to qualify for the promotional rate. If for any reason you are not ready to transfer the balance right away, you should wait to apply for the card or choose a credit card that does not require you to make the transfer upfront.
Source of Credit Card
Typically, you cannot transfer balances between credit cards issued by the same bank. So when considering balance transfer cards, exclude cards issued by the same creditor you want to transfer the balance to.
Other Questions to Ask
Now that you know how to choose the right balance transfer card, make sure to ask the right questions about how to use it.
How long will it take to pay off the balance?
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Do you have a plan to pay off the balance transfer? Or are you simply transferring the balance to get a low-interest rate for a few months? A credit card balance transfer is best when you can pay off the balance within the promotional period. If you can’t pay it off soon, try to pay it off after the promotional period ends. The longer it takes to pay off the balance transfer, the more you’ll pay in interest.
Will a balance transfer save you money?
Don’t assume that the low promotional interest rate will save you money overall. You’ll still have to pay balance transfer fees and any annual fees associated with the new credit card. A balance transfer calculator can help you determine whether you’ll actually save money by transferring your credit card balance.
What is your credit utilization level after the transfer?
Your credit utilization, which measures how much of your total available credit you’re using, affects 30% of your credit score. If transferring the balance results in a credit card balance that constitutes a large portion of the card’s credit limit, it may impact your credit score. Fortunately, your high credit utilization ratio will decrease once you pay off your credit card balance.
Thank you for reading this article, and we hope you found the information necessary to choose the right balance transfer card for you.
Sources:
– Federal Trade Commission. “Credit Card Accountability Responsibility and Disclosure Act of 2009,” SEC. 172. Additional Limits on Interest Rate Increases.
– myFICO. “What’s in My FICO Score?”
Source: https://www.thebalancemoney.com/how-to-choose-a-balance-transfer-credit-card-960204
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