About
Before you can ask what kind of balance transfer credit card is right for you, consider the advantages of even doing that. What does transferring your balance do?
High Interest Rate Credit Cards
Let’s face it, sometimes people get carried away with spending on credit cards. Sometimes that happens on a high interest rate store or general use card. If you’re in a situation like that and paying the minimum payment each month, you’ll notice that the balance doesn’t appear to be decreasing like you want it to.
If you have a $1,000 balance on a 19.99% interest rate card, the interest expense will be about $200 over the course of a year or about $17 a month. If your payment is $25 per month, only about $8 of it is going toward reducing the principal. That means after a year of making the minimum payment, that $1000 might only be reduced by $100 or so.
There are three ways to reduce that balance:
- Make more than the minimum payment (the interest percentage will still be the same but more of the principal will be decreased each month)
- Pay it all off
- Put the balance on a balance transfer card
Balance Transfers
Balance transfer cards work like this. You take that $1,000 balance with its 19.99% interest rate and transfer it to balance transfer credit card. How is that different from your current card? Here is an example of what a current balance transfer credit card is offering:
- 0% interest for one year
- They will not increase the introductory fees for any reason prior to the end of the introductory period
- No annual fee
- Features such as 24 hour travel service, emergency and roadside assistance and car rental insurance among others
What this means is that you can transfer your $1,000 balance and pay if off without interest if you can pay it off within one year (Note: After that, another interest rate will take effect)
If you can pay about $80 a month, the balance will be gone in a year. If you paid $80 a month with the 19.99% interest, it would take you 15 months to pay it off. In this situation you will save $240 by moving your $1,000 balance to a 0% balance transfer credit card.
So, the two most important factors in making this process work for you is the interest rate and the amount of time you can take to pay it back prior to a higher interest rate taking effect. Some cards offer this time period for 18 months.
Advantages of Balance Transfer Credit Card Deals
In addition to saving a substantial amount of money, this process helps you take control of your finances. It can also help you if the credit card provides other perks such as cash back or other rewards common to credit cards. Compare these features with other cards on one of the credit card comparison sites to take full advantage of what’s available.
The balance transfer process is quick and painless. In fact, most credit card companies will provide you with checks to pay the balance off.
Factors to Consider
As good as this sounds, there are some factors you need to be aware of. Make sure that the 0% interest rate is guaranteed for the period advertised. Watch out for balance transfer fees and the annual credit card fee to make sure they are as advertised.
Make sure you can make the payment. Often, if you’re late, you could not only be charged a penalty fee but the interest rate could be changed to a higher one.
Also keep in mind that these offers are developed as enticements to get you to use another credit card. In fact, odds are that you’ll have a 0% or another low interest rate to use for purchases other than transferring your balances. This is where you want to use discipline. It can be tempting to take advantage of the low introductory rates only to not be able to pay your purchases off before the interest rate rises. If you do that, you may find yourself in the same situation you were in prior to making the balance transfer!
There are many choices available so you might want to perform some due diligence when selecting a balance transfer card. Credit card comparison charts are available to compare balance transfer credit card features such as rates, rewards and annual fees.
Take advantage of this information when choosing a card.
Make a fiscally sound credit card decision regarding any credit card use. It has to perform well for your financial circumstances.
