There are a few major things you want to look at when considering the merits of a credit card balance transfer. These are the interest rate, the length of the introductory period, balance transfer fees and potential benefits. While these terms are some of the most important aspects of a balance transfer — or any kind of loan for that matter — there are some other points to consider as well.
Here’s what to look for in a balance transfer card.
Seek Out the Longest Intro Period with the Lowest Rates
The interest rate is often the most critical part of a loan. A difference of a few percentage points can mean the difference between easily repaid debt versus unmanageable. Make sure you’re getting the best possible rate to ensure you’re able to pay off the debt.
With a balance transfer, however, the duration of that zero percent introductory rate can be just as important. You’re only going to get a finite window within which to repay the debt without accumulating interest. Many introductory rate offers are now in the 12-18 month range. Remember, the longer you have that zero percent rate, the more you’ll be able to pay down your debt—hopefully all the way.
Factor in the Balance Transfer Fee
Something unique to this type of situation is the balance transfer fee. After all, what’s the benefit to credit card companies of having you transfer your debt to them if they’re not getting something from it? In many cases, a transfer fee of three to five percent is their incentive for the generous zero percent introductory interest rate.
The size of the balance transfer fee can play a big role in determining whether the transfer makes sense. At five percent, an extra $50 for every $1,000 you transfer can add up fast. If you’re already struggling to meet your payments, adding more costs might not be helpful.
It’s important to note some cards do waive the balance transfer fee if you pay off your debt in full within a certain time frame. It’s wise to explore these options, but know there’s probably going to be a drawback in some other way. For instance, there might be no other benefits to the card. The ability to reduce or eliminate your credit card debt, however, is a pretty great benefit in itself.
Consider Whether a Balance Transfer Is Really Your Best Bet
While there are situations in which a credit card balance transfer is a sensible action, it’s not always the best solution. Take a good, hard look at your finances and the terms of the credit card balance transfer before you sign the deal. If you’re not able to pay off the debt within the introductory period, you might end up in a deeper financial hole.
Another form of credit card consolidation is through debt negotiation from an agency such as Freedom Debt Relief. One of the benefits of taking this route is you’ll be working alongside debt professionals who have lots of experience helping consumers get to a better financial place. You’ll make a single payment to the debt relief agency at a lower net interest rate than the combination of your prior debts.
Done well, this can be an effective way of beating your credit card debt.
Read All the Rules and Fine Print
The magic of a credit card balance transfer evaporates if you trigger one of the conditions in the fine print. There could be a rule that states your introductory interest rate goes away if you miss a payment. That’s an important thing to know, as missing that one payment could then throw your entire financial life into limbo. Yes, poring over details is exhausting. But so is dealing with unmitigated credit card debt.
Credit card balance transfers can be a great way to reduce your debt if you create a plan and execute it. Before anything else, though, it’s essential you learn what to look for in credit card balance transfers.