A credit card offer that features a low- or 0 percent-interest introductory period on debt transferred from another credit card can be an efficient way to vanquish a large credit card balance over time without shelling out any (or very little) interest. Its also the only practical way to pay off one credit card with another. Credit card companies wont allow you to directly use a credit card to make a monthly payment.
Who should (and shouldnt) get one?
These cards are typically designed for and offered to individuals with good to excellent credit. You may not qualify if your credit isnt in tip-top shape. If you have damaged credit, a personal loan might be a better option, particularly if you can find a fixed-rate offer that is lower than your credit cards annual percentage rate.
Balance transfer cards are ideal for individuals struggling to pay off the principal of their credit card debt due to high monthly interest payments. With balance transfer cards, you can make one low-rate monthly credit card payment instead of several.
If you can really keep yourself on a budget . (a balance transfer credit card) can be a useful tool for paying down debts, says Thomas Nitzsche, a certified credit counselor and communications lead at Money Management International, a Sugar Land, Texas-based nonprofit credit counseling agency.
But if youre simply transferring balances from card to card, the new one wont eliminate your debt woes. In fact, you could wind up exacerbating them because balance transfers often involve fees and could carry high go-to interest rates once the introductory period is over.
You have to do a balance transfer for the right reasons, says John Ulzheimer, a nationally recognized credit expert formerly of FICO and Equifax. To do it to tread water for another 12 months before sinking is not worth it. To tread water while aggressively paying down your debt in 12 months – thats the right strategy.
Tips on balance transfer cards
Before jumping at an offer, read the fine print and calculate the costs. The key figures are the:
– Introductory interest rate.
– Annual percentage rate (APR) after the intro rate.
– Balance transfer fee.
– Minimum monthly payment.
Under federal law, the teaser rate must last at least six months. Many balance transfer credit cards will offer introductory rates for longer periods, anywhere from 9 to 18 months or sometimes even longer, Nitzsche says.
Use a credit card balance transfer calculator to figure out if youll be able to pay off the balance in full before the promotional period ends. Otherwise, you may end up paying a much higher rate on your credit balance.
In addition, stay away from using the card for further purchases while paying off the balance. Its important to steadily reduce your credit card balance on a monthly basis.
Dont forget to add in the cost of the balance transfer fee, which is typically around 3 percent of the balance. Also factor in what the new cards minimum monthly payment will be; often, its a percentage of the balance transfer.
Can I qualify?
Even if all the numbers pan out in favor of a balance transfer, you still have to qualify. That means you should have a good idea of what your credit looks like before applying.
Those with stellar credit (750 or above) will likely qualify for the best teaser rates. If your credit score falls below that, you may get a higher teaser rate, but it still may be lower than what youre paying now.
You have to set your expectations within the realm of reality, says Bruce McClary, vice president of public relations and external affairs with the National Foundation for Credit Counseling.