Best Cards For Balance Transfer: Save Hundreds On Interest

By Matt

If you currently carry a balance on your credit card you are probably making some pretty steep monthly interest payments to your credit card issuer. Carrying even a modest balance can be very expensive. If you carry and maintain $2,500 balance and you are paying 14% APR (annual percentage rate) then you are paying $350 in annual interest charges. On average, people who carry a balance on their credit cards pay a higher interest rate, and people who carry large balances pay even higher interest fees. This is, after all, the bread and butter of the credit industry. So, if you could reduce your interest charges to, say, nothing, you would, right?

What is a balance transfer

A balance transfer involves a shift of your current credit card debt from one or more cards to a new credit card. The new credit card issuer will pay off your existing debts and carry the consolidated debt for you. All interest payments will now be made to the new credit card issuer.

How does it save me money?

You save money because, ideally, your new credit card is offering 0% APR on balance transfers.  You agree to be a customer and they agree to cut you a break on your interest. Does the deal seem too good to be true? That depends on whether you are able to pay off your balance before the introductory period. Your new low rate will not last forever. Most introductory rates on balance transfers have a time limit, usually between six and 18 months. Additionally, there is usually a fee involved in the transfer, typically 3 to 5 percent of the amount transferred. The best cards for balance transfer will have a low transfer fee and a long introductory period.

Three ways ensure you benefit from a balance transfer

1. Pay off your balance. If you don’t pay off your balance during the introductory period you will be right back where you started. Depending on your credit score, your post-introductory period interest rates will jump from 0% to the 12% to 22% range. You might end up with higher interest charges on your new card than your old one.
2. Shop around. Make sure you get the best deal you can. Get the best combination of grace period and transfer fee you can. Don’t let yourself be wooed by other reward programs, these cards often carry a higher APR when the introductory offer expires. Remember your goal is to get out of debt.
3. Use credit wisely. You’ve suddenly freed up some money that was going to debt financing.  The best use of the extra funds will be to pay down your balance. Your new card may have a higher credit limit. Avoid using it. Once your balance is paid off keep it that way. You will benefit from lower interest rates in the future and an improved credit score.

Choosing the best card for balance transfers involves a close look at the introductory offer and the transfer fee. Depending on credit score, not everyone will qualify for 0% APR offers. Ensure you make the best use of the introductory period.