Don’t Get Burned by a Balance Transfer
It happens to the best of us, we take a vacation, buy some Christmas gifts or maybe even just had an unplanned emergency and now you have a balance on your credit card. You are probably realizing just how much you spent and are looking for a low-cost way to pay off the balances over time, or maybe you are just tired of paying that high rate credit card. You get balance transfer offers in the mail and can find them online all the time, but how do you know which offers are the best? Here are a few steps to follow to help you analyze and decide.
What is the Interest Rate?
The interest rate alone could make a difference. If you could lower a rate on a $5,000 balance by 10% that would mean a savings of about $500. Some departments store cards charge over 20% interest, while some credit card companies offer introductory balance transfer rates as low as 0% interest. You will save hundreds of dollars a year by simply shopping around and reviewing some of those credit card offers you receive in the mail.
Is There a Transfer Fee?
Many credit card companies now charge transfer fees when you do a balance transfer. The fee usually does not exceed 5% and sometimes there is a minimum and maximum amount they will charge. You need to pay attention to this because it is immediately added to the balance, making your total balance the amount you transferred plus the fee. Choosing an offer of 2.9% on a balance transfer with no fee may actually be more beneficial than a 1.9% offer with a 3% fee.
What is the Term of the Balance Transfer Rate?
How long will you get a good rate for? 6 months? 12 months? The life of the card? This could be critical. if you choose a credit card just for the lowest rate and it expires in 6 months, you could be in for a shock as it adjusts to the normal variable rate. It could even make your payment increase significantly. It’s not uncommon for the balance transfer offer rate to go from the 0% introductory rate to as high as 15-18% after the first 6 to 12 months. This could really defeat the purpose of getting the card in the first place. If you are going to do a balance transfer you really need a plan on what you’ll do after the initial balance transfer rate expires.
And Don’t Forget, Get out of Debt!
Remember, when getting a new credit card you should have the goal to get out of debt as quickly as possible and following these three balance transfer tips will help you find a card that will best meet your needs.
Here are a few balance transfer offers that are on the available as of October 2019:
The Citi Simplicity Card
My 3 main factors in choosing a balance transfer card:
- Balance transfer rate: 0% (this is also known as the introductory rate)
- Balance transfer term: 21 months from the date of account opening (really good!)
- Balance transfer fee: $5 or 5% of the amount of the transfers, whichever is greater.
There are a few other things you need to consider when choosing a new credit card. One of which is what is the interest rate after the balance transfer term. In this case, there is a standard variable APR (Annual Percentage Rate) for purchases and cash advances that currently ranges from 16.49% to 26.49%. This is a variable rate that will adjust as the Prime Rate varies up and down. When choosing a card you need to have a plan when the term ends. If your rate jumps from 0% to 16% you will quickly start to lose the ground you have gained by having your balance at 0%. This card also does not have an annual fee, which is a plus.
The Capital One Quicksilver Cash Rewards Credit Card
My 3 main factors in choosing a balance transfer card:
- Balance transfer rate: 0%
- Balance transfer term: 15 months from the date of account opening (pretty good!)
- Balance transfer fee: 3% of the balance of transfers.
The Capital One Quicksilver Cash Rewards card has a few other things you might want to consider as well. For instance, if you plan on using the card for purchases as well as balance transfers you can earn an additional $150 when you spend $500 during the first three months. Your purchases have the same introductory rate as the balance transfer, 0% so if you were planning on making a large purchase you could essentially get it with no interest just like a balance transfer. In addition, once your transfers are paid off, which you should do before focusing on the other benefits, you can use the card and take advantage of the cash rewards of 1.5% on all purchases. This can really add up, but should only be used if you can pay off your card each month and avoid all interest charges.
The BankAmericard Credit Card
My 3 main factors in choosing a balance transfer card:
- Balance transfer rate: 0%
- Balance transfer term: 18 billing cycles for transfers made within 60 days of account opening (pretty good!)
- Balance transfer fee: $10 min or 3% of the amount of the transfers whichever is greater.
As with the other cards discussed here, the BankAmericard credit card has a variable rate after the initial balance transfer period. That rate currently ranges from about 15% to 25% and will vary on a monthly basis. With a lot of credit cards, you have to be really careful with your balance transfers because often if you make a late payment your rate automatically adjusts. With the BankAmericard, it does not. That is one good benefit to the card. This is pretty much a no-frills card, but as long as you keep up on your payments you could enjoy a year and a half with no interest.
Additional Tips to Consider
Set up automatic payments.
Here’s a simple hack to make sure you always avoid those higher penalty rates, set up automatic payments. Even if it is just for the minimum having it set will ensure that you avoid missing a payment and incurring more charges.
Have a backup card
Once you have a balance transfer at the rate you want you may want to start looking for the next card to transfer a balance to. Having a second card ready to go if you are not able to pay the entire balance during the introductory rate period will help you avoid unnecessary interest charges. It also gives you a little negotiating power with your card company.
All in all, if you are cautious and diligent in selecting a balance transfer card you will save a lot of money in interest alone. Getting to know and understand balance transfers and how to use them as tools will help you win the credit card game.