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Credit card balance transfer: a good idea?

Credit Cards » Credit Card Balance Transfer: A Good Idea?

The post-holiday blues have set in along with hefty yuletide credit card debt. Your well-intentioned plans for a Christmas-within-your-means fell short, and now you're faced with the prospect of paying off your holiday spending -- plus 15 percent interest -- for the next six months or longer.

There might be a better way.

A credit card offer that features a low- or no-interest introductory period on debt transferred from another credit card can be an efficient way to vanquish a large credit card balance over time without shelling out any (or very little) interest.

"You have to do a balance transfer for the right reasons," says John Ulzheimer, president of consumer education at SmartCredit.com. "To do it to tread water for another 12 months before sinking is not worth it. To tread water while aggressively paying down your debt in 12 months -- that's the right strategy."

Do the math

Before jumping at an offer, read the fine print and calculate the costs. The key figures are the introductory interest rate, the length of the introductory period, the annual percentage rate -- or APR -- after the intro rate, the balance transfer fee, and the minimum monthly payment, says Mary Ellen Nicol, a counselor with nonprofit credit counseling service CredAbility in Atlanta.

Under a new federal law, the teaser rate must last at least six months. Many balance transfer credit cards will offer introductory rates for longer periods, anywhere from nine to 18 months, according to Ulzheimer. He recently received a zero percent offer for 21 months.

Be realistic in determining how long it will take to chip away at the balance. Will it take longer than the introductory period? If so, then the math gets a little more complicated. Now you need to consider what the interest rate will bump up to after the teaser period ends and how much you will pay in interest on the remaining balance.

Don't forget to add in the cost of the balance transfer fee, which is typically around 3 percent of the balance. Also factor in what the new card's minimum monthly payment will be, which often is a percentage of the balance transfer.

"If the fees are too high, the length of the low-interest rate period too short or the minimum payment too high for your budget, then it becomes not a smart financial move," says Nicol.

Can I qualify?

Even if all the numbers pan out in favor of a balance transfer, you still have to qualify. That means you should have a good idea of what your credit looks like before applying.

"Simply because you want a balance transfer doesn't mean that you will get one," says Ulzheimer.

Those with stellar credit will likely qualify for the zero percent interest rate. Ulzheimer says that means a FICO credit score well into the 700s. If your credit score falls below that, you may get a higher teaser rate, but it still may be lower than what you're paying now.

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Product Rate Change Last week
Balance Transfer Cards 15.80% --0.00 15.80%
Cash Back Cards 16.42% --0.00 16.42%
Low Interest Cards 11.09% --0.00 11.09%
 
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