Choosing a credit card is tough enough with the seemingly endless variety of banks to choose from, but with the addition of different types of cards (rewards, balance transfer, debit, etc), selecting the right credit card for you can be a head spinning endeavor. Fortunately, at eCreditCards.com, we’re here to help you sort through all of your options. For today’s credit card tutorial, we’ll be filling you in on balance transfer cards: what they are, how they work, and if they’re right for you.
What is a balance transfer card?
First and foremost, it is important to remember that a balance transfer card is your ticket to paying off debt with minimal interest. In this sense, a balance transfer card is only effective if it comes with a 0% introductory rate. This is because you will be using the cards only as long as the 0% interest rate applies (typically around 12 months), before either paying off your debt completely or switching to a new balance transfer card. This way, you are putting off your interest with each new balance transfer.
While it may seem devious to cycle through credit cards in this manner, credit card companies developed balance transfer credit cards with this process in mind. The balance transfer cards serve credit card companies not only by luring in customers, but by luring in customers with potentially-lucrative histories of debt.
How does a balance transfer card work?
The first step is to select a balance transfer card. As there is a dizzying wealth of balance transfer cards on the market, you’ll want to keep an eye out for two key features: the longest possible 0% introductory rate (some last up to 15 months!) and the lowest possible post-introductory interest hike (some increase like crazy after the initial 0%).
At this point, you will want to transfer as much debt as you have onto the credit card, ideally to the card’s limit. At this point, it is up to you to pay off your debt as responsibly as possible. With on-time payments, you will avoid interest fees altogether and save enormously over the course of the introductory period.
It is imperative to know exactly when your 0% interest promotion is scheduled to expire. When you are nearing this point, if you still have remaining debt, you should switch over to a new balance transfer card and continue with the cycle until you’ve reached a more stable point with your debt.
Is a balance transfer card right for me?
While they may charge no interest in the beginning, most balance transfer credit cards have transfer fees, typically around 3%. Unfortunately, due to our poor economy and current credit crunch, these fees no longer have maximum caps.
Before choosing a balance transfer credit card, you need to consider if your 3% fee will be compensated in interest savings over the introductory period. This, of course, depends on how much money you owe and how much interest you are currently paying. For those with high interest rates on their debts, balance transfer credit cards can help lessen the load. And as high balances translate to high interest rates, the same rules apply for those with heavy debts.
As with all things that seem too good to be true, there’s a lot to be wary of when it comes to balance transfer cards. These cards are best for those who know they can pay off their debts within the span of their introductory periods. Failure to pay off debts in time can lead to interest hikes, which will ultimately negate all of the benefits of the balance transfer cards. Lastly, do not count on being able to transfer debt immediately upon finishing the introductory period. Great balance transfer deals aren’t always available, and it’s best not to take risks when it comes to debt.