Do you have expensive credit card debt you’re trying to pay down? You might consider transferring a balance to a new credit card.
This debt reduction strategy will allow you to transfer a balance from a credit card with a high annual percentage rate, or APR, to a new one that is offering a low, introductory teaser rate for a certain period of time. Of course, not every offer is created equal.
“There’s a tipping point for some people when it comes to how satisfied they are with a card,” says Bruce McClary, vice president of public relations and communications at the National Foundation for Credit Counseling. “You want to shop competitively for the type of credit card that is going to save you the most money in interest and fees.”
To save you some time and, perhaps more importantly, some dollars, here are five features to look for when reading the fine print of a balance transfer credit card.
“There’s enough competition out there where most (issuers) are giving you 0 percent,” so long as your credit score justifies the loan, says Wayne Sanford, president of the credit consulting company New Start Financial.
For people with so-so credit, “even a 7 percent card can make sense,” says Kelley Long, a member of the National CPA Financial Literacy Commission under the American Institute of CPAs. “Anything that’s a few points lower than one you are paying” could suffice.
Still, you need to look beyond the teaser rate. The go-to APR — that is, the rate that will be applied to your balances once the introductory offer expires — should also be reasonable.
“Make sure that it doesn’t go from 0 percent to 30 percent,” Sanford says.
Your new card should save you on interest, but there’s usually some cost associated with the move. Issuers typically charge a one-time fee upfront for transferring a balance.
“They’re usually around 3 percent” of the debt you’re looking to pay down, says Thomas Nitzsche, a certified credit counselor and communications lead at the nonprofit credit counseling agency Money Management International.
There are offers out there that will let you transfer the balance for less — or even for free. Look for a fee that’s the same or lower than the standard one.
If you do find an offer you otherwise like, see about having its transfer fee lowered or waived. If they won’t waive the fee entirely, suggest paying the minimum dollar amount associated with the transfer.
“Most credit card companies will do it,” Long says, especially if the offer doesn’t carry a 0 percent balance transfer APR and your credit is in good shape. (You’ll probably need to have a credit score of 740 or higher.)
This feature allows you to get the deal on all of the debt. Plus, you’ll avoid having to carry a balance on multiple cards. Moreover, a high credit limit will keep your credit utilization rate and your credit score intact.
“If you’re transferring $1,000 but (the card) has a $1,000 limit, guess what? You’re maxing out your card,” says Barry Paperno, former consumer affairs manager for FICO who now runs the blog SpeakingOfCredit.com. “Your score is going to treat it like (that.)”
To get a sense of how much available credit you’ll have left after transferring a balance, call the issuer before applying and ask what limits its card typically carry. Then you’ll be able to better judge if opening a credit card will hurt your credit score.
Pull your credit score ahead of shopping around to get a sense of whether you’re worthy of a high limit. If you do wind up saddled with one that is too low, make on-time payments and then in six months ask the issuer to raise the limit.
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Enough time to pay off your loan
Your introductory APR isn’t going to last forever, but the best balance transfer offers provide ample time to pay the balance down at the teaser rate.
“You want to look for at least a minimum of 15, 16 months,” Sanford says. People with great credit may even qualify for introductory APRs that last much longer — anywhere from 18 to 24 months.
Make sure to compare transfer fees and the standard annual percentage rate after the intro period before you apply. Not all balance transfer offers are equal.
Once you’ve settled on an offer and know how long you’ll have to pay, “take that balance and divide it by the number of months and make that your monthly payment,” Long says. She also advises making a note on your calendar six weeks out from when the offer will expire, so you’ll know if you need to shop around for another offer.
Use our balance transfer calculator to determine what your monthly payment on the card should be and whether a particular offer is worthwhile.
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No major loopholes
Terms and conditions on credit cards are more consumer-friendly today, as issuers compete for the most valuable customers. But that doesn’t mean you don’t have to double-check for loopholes.
You may encounter offers where, “if you don’t pay the entire balance within that introductory offer period, they’ll take the interest and backdate it,” McClary says. “That’s not exactly a good deal for consumers,” especially if the go-to APR is higher than the one on the card you originally moved the balance from, he says.
More commonly, many offers are considered null and void if you miss a payment or lose your grace period. To avoid these and other caveats, “read the fine print,” Nitzsche says, and pay particular attention to what will happen when the introductory offer expires and the balance is not paid in full.
Alternately, “hold your feet to the fire when it comes to paying down that balance so you don’t get burned later,” McClary says.