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When Do Balance Transfer Credit Cards Make Sense?

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When Do Balance Transfer Credit Cards Make Sense

If you’ve got a big balance on a credit card with a high interest rate, transferring a balance to a card with a lower interest rate could make financial sense. Why? Because you’ll pay less money on interest charges as you pay down your balance, meaning that more of each payment you make gets directly applied to your outstanding debt.

Sounds great, right? Well, as with any new credit card you’re considering, there are several things you need to think about before you apply for a balance transfer credit card.

Start With a Credit Check

Before you start shopping for a new balance transfer credit card, it’s a good idea to find out your credit scores so you have an idea of the terms and conditions you may qualify for on a card. The best offers, like those with with rock-bottom introductory interest rates of 0% for a year or more, are often reserved for consumers with good credit.

Not sure where your credit currently stands? You can see two of your credit scores for free on Credit.com. These two free scores are updated every 14 days, helping you monitor any changes to your scores on a regular basis. If you discover you have credit scores of 700 or higher, your good credit should help you qualify for a new credit card with a low annual percentage rate (APR). But just because you have good credit doesn’t mean you should sign up for any card you qualify for. In fact, there’s more you need to read up on and consider, like…

What Types of Fees Does the Card Carry?

As enticing as low rate balance transfer credit card offers may be, it’s important to factor in the cost of fees. Of course, there are the standard fees that come with some credit cards, like annual fees, foreign transaction fees or cash advance fees, to think about.

But balance transfers often carry their own additional fee. You may pay a balance transfer fee of 2% to 5% on the balances you transfer to a low interest rate credit card, so it’s a good idea to compare several different cards to see what might be right for you. (To get started, you can take a look at some of the best balance transfer credit cards on the market here.)

It’s also important to note that some balance transfer cards may charge slightly higher introductory APRs and no balance transfer fees. So do your research, read the fine print and weigh your options carefully.

How Long Is the Introductory Offer?

Another thing to consider as you compare cards is how long the introductory or teaser rate on a balance transfer offer will last. It is legally required the offer last at least six months, but there are offers that extend past this so you’ll want to review the fine print. Does the offer last the standard six months or is it going to give you 12 months, 18 months, or 21 months? Each card may offer something just a bit different, so it’s important to take note of this.

The months when you are paying little or no interest on your credit card balance are prime opportunities for paying down your debt. It may be a good idea to review your budget and see how long you think you’d need that introductory rate for in order to get your debt paid off. You may consider using this credit card payoff calculator tool to help.

What Happens After the Introductory APR Expires?

Now you know how long your APR is good for, but what if you aren’t able to pay off the entire balance by the time it expires? Even if you’ll get most of it paid down before the introductory period lapses, but have a small amount remaining, you’ll want to take a look at what sort of interest rate you’ll be faced with paying once the introductory rate expires. Most issuers list this information in their terms and conditions or details pages, and you’ll want to keep this mind as you comparison shop.  

Remember: Responsibility Is Key

Doing the research, understanding where your credit stands and comparing different balance transfer credit cards before applying for one are all important steps in getting a new card. However, it doesn’t end there. It’s important to note that just because you transfer your credit card debt to a new card that doesn’t require you pay interest for a given amount of time, it doesn’t mean that your debt is gone. It just means you’ll be able to put your entire payment toward your principal instead of having to pay the additional interest charges that would get tacked on otherwise. So, set a plan and stick with it. And when it’s all paid off, your wallet and credit scores will definitely thank you.


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  • Me110wM00d

    I have a very recent installment loan that was opened for a home improvement project. The rate I ended up getting was higher than what I was originally quoted, but it was too late to cancel the job when I found out it was going to be higher.

    I have a current promotion on my credit card for either 0% for 15 mos. and 3% fee or 4.99% for 21 mos. and $0 fee balance transfer. I have figured that I can save a lot on interest by using either transfer offer, but should I just keep the installment loan? I will take a ding for the increase in credit utilization and lose out on the payment history for the installment loan, but will it hurt my score enough to justify passing on the $1,000’s in interest savings?

    • http://www.Credit.com/ Gerri Detweiler

      Thousands of dollars in savings is hard to pass up! could you do a combination of the two? Use the balance transfer to pay off most of the balance on the installment loan, then pay off the remaining installment loan over a few months’ time? That should result in a very small amount of interest (double check how they calculate interest) and you’ll have several months of payments on the installment loan before it is closed. What do you think?

      • Me110wM00d

        I would like to avoid having two payments on the “same balance” even if for a few months. My budget is kind of tight. How soon would be too soon to pay off the loan, in your opinion? 6 mos? 12 mos? I looked at the numbers again and depending on the variations on how much I pay toward the debt, the savings could be up to around $1,000 and not $1,000’s. Essentially, we’re looking at $3,400 dollars at either 17.99% or the promotional rates.

        • http://www.Credit.com/ Gerri Detweiler

          I should have asked you in the beginning what you are trying to accomplish. Do you not have other installment accounts on your credit reports, so you are trying to establish one?


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