Charles H. Miller
Balance transfer cards are great tools for reducing or even eliminating one’s debt. Essentially, these products allow you to move balance from your existing card to the new one that has an introductory period of 0% APR, helping you avoid paying interest to the bank.
Before applying for one of these cards, you should learn a thing or two about them. We have selected what we think are 6 essential things to know about balance transfer cards that should help you get a better picture before making any commitments. So without further ado, here’s what we’ve got…
1. Moving balance from one card to the other isn’t necessarily free
In fact, it typically costs 3 to 5 percent per transfer, though there are some cards that offer free balance transfers during the first few weeks or months of the account opening. Depending how much balance you want to move from the other card, this could easily cost a few hundred dollars, so you better do the math before taking this step. That being, in most cases, we do advise everyone who wants to decrease their debt to do this.
2. Closing the original card could hurt your credit score
Say you decide to sign-up for a new card that includes an introductory period of 0% APR and move balance from your existing card to the new one. Once you’re done with that, you should think twice before closing the account associated with the original card — that could hurt your credit score since the average age of your account will drop. You can solve this by not using your old card any more (presuming it incurs no annual fees).
3. APR of 0% doesn’t last forever
Credit card offers only include introductory period of 0% APR, after which your account is moved to the regular/ongoing rate. It is therefore important to pay off the balance within that intro period. Or (at very least) to pay off as much debt as possible.
4. You may not be able to transfer the balance to the new card
This could happen if you want to move balance from a card that is issued by the same company/bank as your new balance transfer card. For example, you can’t move balance from Chase Freedom to Chase Slate as both cards are issued by Chase. In order to be able to move balance from an existing card, you should find a 0% card that is issued by a different bank.
5. You should pay more than minimum every month
Balance transfer cards are best used to get out of debt so paying the monthly minimum is not really the point here. In fact, you should pay as much balance as possible to reduce, and eventually eliminate your entire debt (if that’s what you want). You won’t be penalized for paying only the minimum amount due — and it’s tempting to do (just) that — but sooner or later, you will have to pay for all the goods you bought.
6. You should not go to a shopping spree
Again, presuming you want to get out of debt, don’t shop around like it’s nobody’s business. Many balance transfer cards include 0% APR on both purchases and balance transfers, and it’s tempting to make big item purchases interest-free. But, is that why you got yourself a balance transfer card for? Perhaps you did; perhaps not. It’s your money and you can do with it whatever you want — we just want to warn you about this temptation.
Ready to start?
If you do want to get yourself a balance transfer card, whether to reduce/eliminate debt or for some other purpose, you should NOT visit your favorite bank’s website and go for the first 0% card you see. Shop around, instead. Check out the links below where you will find cards from multiple credit card issuers. This way, you will get a better picture, and by seeing what’s available on the market, you can compare few cards, and select the one that works best for you. Good luck!
