John S Kiernan, Managing Editor
Yes, a balance transfer is a good idea if you need months to pay off high-interest debt and you are able to qualify for a 0% balance transfer credit card deal. Most balance transfer cards require a 700+ credit score, and most also have high regular APRs, making it important to repay what you owe before the 0% period ends.
What you should know before making a balance transfer:
- You generally need good credit or better to get a 0% balance transfer credit card. Most balance transfer cards have very high regular APRs, making it important to repay what you owe before the 0% period ends.
- You’ll also want to make sure the new card’s balance transfer fee is as low as possible. The average balance transfer fee is 2.55%. However, sometimes there are credit cards that have both 0% APR on balance transfers and no balance transfer fees.
- You should use a balance transfer calculator to compare the cost of repaying what you owe with your current card versus taking advantage of the best balance transfer offers.
If you’d like to know where you stand before applying for a balance transfer card, check your latest credit score for free on WalletHub.
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Derek Sanders, Member
They are, but if you have damaged credit, a personal loan might be a better option, particularly if you can find a fixed-rate offer that is lower than your credit card’s annual percentage rate.
Cameron Sarr, Member
They’re definitely a good idea. The catch is you’ll need to have great credit to be able to qualify for one. That being said, balance transfer credit cards are ideal for people who struggle to pay off the principal on their credit cards due to high interest rates. With a balance transfer card, you can make only one payment per month, and almost all balance transfer cards have 0% introductory APR for a certain period of time.
People also ask
Bob Broshack, Member
Paying unnecessary interest is a pet peeve of many. Therefore, it is not surprising that many people may take this option to help reduce their overall payments. However, it is important to note some of the facts behind transferring your balance and some possible repercussions. With this newfound knowledge at hand, you will be able to determine whether or not it is a good idea to take advantage of a balance transfer. Before I begin, I am assuming you mean transferring the balance of your credit card debt.
One of the main enticers of a balance transfer offered by credit card companies is that it comes with a 0% interest. There are a few catches to this that can come back to haunt you. Firstly, a balance transfer usually has a fee associated with it of about 3% to 5%, depending on the company. In addition, the 0% interest rate is only good for a certain period of time (this range can vary greatly). If you do not believe that you can pay off your debt before that time, your APR will skyrocket. Another tricky scheme that credit card companies came up with is a deferred interest promotion. This promotion means that if you do not pay off your transferred debt during the time period that the 0% interest is offered to you, then you will be responsible for all of the accrued interest during the life of the promotion. This could be potentially devastating to a consumer. Therefore, depending on the specific terms of the promotion, if you believe that you can pay off the transferred balance before the 0% interest rate promotion is over, then that is good news. However, I would not advise you to take the promotion just yet.
There are other factors that come into play as well. The 0% rate promotion only applies to your transferred debt and not to any new debt that you will accumulate once you start using your card. In addition, your credit score may take a small (or large) hit. The length of your accounts does factor into your score. If you transfer your balance, that account will close and a new one will open. Therefore, the length of your account will essentially be 0 days. If you are not planning on making any big purchases soon that require financing, then I would not worry about that last point.
Overall, with these facts in mind, the decision to transfer your balance can come at a cost. I would self-assess my situation and make a decision using the pros and cons outlined above.
Mike Brown, Member
Yes. If you've got a 0% balance transfer card, or just one with a lower APR, there's no reason why shouldn't try and save some money. Keep in mind tho, it's not just the APR that you have to take into account, it's also that balance transfer fee.
David Lombardy, Member
Whether or not a balance transfer is a good idea depends solely on four things: 1) the type of debt you have; 2) how quickly you will be able to pay it off; 3) both the introductory and regular APR; and 4) your credit standing.
1. Type of Debt: From time to time, you may be able to transfer outstanding debt from certain types of loans (e.g. an auto loan) to a credit card, but most of the time you’ll only be able to transfer credit card debt. That means a balance transfer will usually be a bad idea if the debt you intend to transfer does not currently reside on a credit card.
2. Payoff Time: Credit cards typically charge a one-time balance transfer fee equal to 3% of the debt you transfer. If this fixed cost is greater than the interest you’d pay by not making the balance transfer, then there’d obviously be no reason to go through the hassle. A lot of people who will be able to pay off their debt relatively quickly don’t realize just how much a 3% balance transfer fee can cost them. For example, you’re better off paying a 6% interest rate for six months than paying a 3% balance transfer fee up front.
3. Interest Rate: People often look only at a balance transfer credit card’s introductory APR as well as how long it will last, but if it might take you longer than that to pay off what you owe, you’ll also need to consider each offer’s regular interest rate. You can’t just count on transferring your remaining balance to another balance transfer card when the time comes because none might be available (this is exactly how a lot of people got into trouble during the Great Recession). And if your card’s regular rate is higher than the rate that made you transfer your balance in the first place, your initial savings will quickly disappear. Therefore, when you look at any balance transfer credit card, you should consider how much it will save you not only during the intro period, but over the entire life of your balance.
4. Credit Standing: Most, if not all, of the balance transfer credit cards that are worth getting require good or excellent credit for approval, so if your credit isn’t that good, you should focus on improving it, rather than applying for cards that you can’t get.
If these things won’t be a problem for you, then a balance transfer is a great idea. Making one will enable you to trade in a high interest rate for one as low as 0% and will therefore not only save you a bunch of money, but also bring debt freedom to bear much quicker. You’ve got to find the right card though, so make sure to compare balance transfer credit card offers before applying.
R. Joseph Ritter Jr., Financial Advisor
It depends on several factors. First, what is your interest rate now and have you attempted to negotiate it? This is important because once the zero rate expires, the new rate will sky rocket, and it will be more difficult to negotiate that rate than it will be to negotiate the rate on your current card. Second, will the entire balance transfer? If not, you will end up with two payments which could be more of a drain on your monthly budget than it is now. Third, is there a fee to transfer the balance? Consider the fee as interest being collected up front, so the rate is not really zero. If you have not tried negotiating with your current card, I would try that first. In the long run, that could prove more effective, especially considering the high rate you will be charged when the zero rate expires.
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