Credit Card Balance Transfers
Credit card balance transfers allow a borrower to pay off one credit card, auto loan, or similar balance when they open a new credit card. In a way it can be considered a refinance, as your old credit card balance is paid, and a new credit card balance begins with a new rate and terms.
Let’s look at a quick example:
American Express Card: $1,000 balance with 20.99% APR
New Visa Card: $5,000 credit line with 0% APR for 12 months
If you accept the balance transfer offer from your new Visa card, you’ll effectively have the $1,000 balance with American Express paid for with your Visa credit card, and the balance on your Visa card will be $1,000. The advantage of electing to use the balance transfer offer is that you’ll be paying 0% APR for the first 12 months on that $1,000, as opposed to 20.99% APR. The only catch is you may have to pay a balance transfer fee, which is usually around $75 or less, although some cards, such as Citibank don’t charge for balance transfers.
So in the example above, you’ll have to pay a minimum payment on your $1,000 balance each month, but the amount will be small, and if you pay $120 a month, you’ll be free and clear, with no interest paid. That’s the ideal balance transfer situation.
So now you might be thinking about a balance transfer. Where and how do you get one you may ask?
Banks and creditors almost always offer balance transfers at the time of application for a new credit card. They usually offer low interest rates for the life of the balance transfer, or 0% for 12 months on balance transfers. And if you apply for a credit card online or by mail, you’ll likely be offered a balance transfer. Instead of taking what comes to you, look for credit card balance transfer offers online. There’s always a better deal waiting for you as banks compete for your business.
You see banks and creditors offer low interest-rate balance transfers and 0% APR introductory balance transfers in the hopes that you will carry the balance with them, and ultimately pay a good amount of interest to their bank. Most borrowers don’t have the responsibility and know-how to pay zero interest for the entire balance they transfer. And this is what the creditor’s bank on.
But if you’re a wise consumer, and stay on top of your monthly payments, due dates, and make sure your balances are transferred before any interest is collected, you can win the balance transfer game.
This isn’t an invitation to spend frivolously, or to not pay your credit card balance in full. It’s a way to avoid paying interest by outsmarting the credit card companies. Or rather, by being responsible.
Let’s look at another example:
Suppose you buy a flat-screen television from Best Buy and open a finance account with Best Buy. Likely they’ll offer you a card for a high interest rate, something in the double-digits to be sure. If you buy on a whim, and don’t have a low-interest credit card, you could open a new credit card with a low-APR or 0% intro APR for 12 months, and pay off the Best Buy balance by doing a balance transfer. That way instead of paying a ton of interest to Best Buy, you can pay off the television at 0% APR or a super-low APR until the balance is zero.
So this probably all seems too easy now. Why pay any interest ever right? Well, there are a few “strings”. You need to be a good borrower. To ensure your low APR stays low, make sure you do the following:
- Pay ALL bills on time every month
- Maintain a strong credit score so you qualify for all offers
- Read the fine print to see ALL transfer fees
- Organize your multiple accounts
- Keep amount of credit cards to a minimum
Also understand that balance transfers take several weeks to post, so don’t rely on them to pay your monthly credit card bill. You should continue to pay your credit card bill as usual, regardless of the status of a balance transfer. If you rely on a balance transfer, and the post date is a day late, it could ruin everything, and kill your low-APR and 0% APR hopes for a long time.
So now that you know a little something about balance transfers, let’s explore some of the best balance transfer deals out there at the moment.