If you’re considering using balance transfer credit cards, you need to understand how they work before you apply. It’s also very important to read the fine print on the credit card application. Only by reviewing the Important Disclosures section and working out the math in advance can you be sure you’ll actually save money on balance transfer credit cards.
Here’s what to look for when you read the fine print:
- Introductory APR on balance transfers – The best balance transfer credit cards offer 0% APR, but if you’re paying 29.99%, you could achieve some savings even with a higher introductory rate.
- Introductory APR on purchases – This may be different from the interest rate on your balance transfer. Be aware that creditors like to apply your payments to the transactions with the lowest interest rate first. If your purchase APR is higher than your balance transfer APR, that could mean any purchases you make will accrue interest until your balance transfer is paid off.
- Standard APR on balance transfers – This is the rate that kicks in after the introductory period has expired. You should try to pay off the entire balance transfer during the introductory period. Otherwise, you could be subject to retroactive interest.
- Standard APR on purchases – Usually this is the same as the standard APR on balance transfers, but read the fine print anyway to be sure.
- Balance Transfer Fee – Most lenders are charging around 4% – 5% of the amount you transfer to the new credit card. If you shop around, though, you could find a better rate.
- Annual Fees, Membership Fees, and Account Setup Fees – These can eat into the savings you would otherwise see when transferring a balance. Just make sure you’re not overlooking any fees, and do the math with a balance transfer calculator.
- Penalty APR – This is the higher interest rate that kicks in after you’ve failed to make a payment, made a late payment, or bounced a check to the credit card company. Make sure you know how much it is, and consider the likelihood that you’ll be paying this higher rate at some point.
- Conditions that trigger the Penalty APR – Some banks will allow you to make one late payment before the penalty APR kicks in while others won’t. Be sure you know how stringent your lender’s rules are on this one, and you’ll have a better idea if it’s worth it.
- Conditions that trigger loss of the Introductory APR – All of your calculations depend on maintaining the teaser rate for the entire introductory period. Make sure you know how to keep it.
