When choosing a balance transfer credit card, there are a few things to keep in mind when making your decision. The most important aspects are APR, the amount of time the 0% or low-APR rate is offered, and associated balance transfer fees.
Before looking at the benefits of a balance transfer credit card, you need to assess your credit card debt situation. This really comes down to whether you have a large amount of debt, or a manageable amount that can be paid off in a short period of time.
How Much Debt Do You Have?
If you’ve got a large amount of debt that will probably take a long time to pay off, you may want to consider a balance transfer credit card with a fixed rate for the life of the balance.
This way you can secure a low rate, usually under 5%, and you won’t have to worry about the introductory period disappearing after six or 12 months. Some of these low-APR balance transfer credit cards don’t charge a balance transfer fee either, making them another good choice for those with large amounts of debt.
After all, if you need to transfer $10,000 and the balance transfer fee is 5%, you’d wind up paying $500 at the outset.
A fixed rate balance transfer credit card also means you won’t need to apply for another 0% APR credit card once your credit card APR spikes back up to the purchase rate, which could likely be above 20%.
Applying for too many new credit cards can hurt your credit. On top of that, there’s no guarantee you’ll continue to get approved for subsequent balance transfer requests.
Shoot for a 0% APR Balance Transfer If You’ve Got Manageable Debt
If you’ve got a relatively small amount of debt, you may want to consider a balance transfer credit card that offers 0% APR for an introductory period, whether it’s just 12 months or longer.
You should be able to find a balance transfer credit card with 0% APR for the first 12 months if you’ve got decent credit (what is a good credit score?), and if you feel you’ll be able to pay off the credit card debt in a year, this is a great way to avoid paying any finance charges whatsoever.
For example, if you transfer $2,400 to a 12-month 0% APR balance transfer credit card and can make $200 payments each month, you’ll be debt free by the time the promotional APR expires. Even if you don’t pay the entire balance off, it could be cheaper than a low fixed rate alternative.
Just remember to always consider the long and short term before jumping into a commitment. Decide how you want to tackle the debt. A 0% APR credit card may be enticing, but you may save more money if you stick with a low fixed APR credit card for the life of the balance.
And if you continue to carry balances, you may run out of options or end up paying interest when the 0% APR period comes to an end. Be sure to factor in associated balance transfer fees, and don’t forget about sky-high default APR, which comes into play if you miss a payment.
A major part of credit card management is planning, and without a solid plan, you’ll likely run into trouble and wind up paying more than you originally anticipated.
*Keep in mind that nowadays most balance transfer credit cards come with a balance transfer fee, though there are still some no fee balance transfer credit cards out there.