Is a Balance Transfer Worth It?

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A balance transfer allows you to move a credit card balance from one card to another. Some balance transfer cards also allow you to move loan balances. A benefit of doing a balance transfer is that they often offer an introductory zero percent APR period. This gives you the opportunity to pay off, or at least pay down, a balance without having to worry about added interest.

That’s not to say balance transfers are free, though. Most issuers charge a fee of 3 to 5 percent of the amount you are transferring, and after the introductory period you’ll be subject to the regular APR. Despite the fees involved, doing a balance transfer can offer a way to lower a large credit card debt.

When is a balance transfer worth it?

If you have high interest debt or high monthly payments, a balance transfer is an option worth looking into. It will, however, require some planning on your part to make sure you repay the debt before the zero percent interest period ends. You’ll also need to factor in the timeframe it will take for your transfer to clear and the fees associated with doing the transfer. Here are some examples of when a balance transfer is worth it.

Debt on a high interest card

Let’s say your current credit card has an interest rate of 24 percent. You’ve accrued a balance on that card of $1,500 and your minimum payment is $45. At that rate of payment, it will take you 56 months (almost five years) to pay off your credit card. And that’s only if you don’t make any new purchases. And even if you double your payment to $90 a month, you’ll still take almost two years to pay this amount off  – again, assuming you don’t make any new purchases. However, if you take the interest rate out of the equation with a balance transfer card, $90 a month could pay off your debt in about 17 months.

Debt across multiple cards

Having debt across multiple cards makes paying things off complicated. You’re likely working with multiple interest rates, which makes things even more difficult. A balance transfer can help to consolidate those debts, giving you just one payment to make each month. Just remember that you are only going to have your zero percent interest rate for a specific period of time, anywhere from 15 to 21 months with the best balance transfer cards. If you are thinking of doing multiple transfers, you want to make sure you can pay them all off in that time frame. Also, remember that you will have to pay that 3 to 5 percent fee for each balance you transfer.

Loan debt with a high payment

Loan debts can also be aided by using a balance transfer card. Before applying for a transfer card, make sure you can transfer loan debt because not all creditors allow it. Bank of America, Discover, and Capital One will allow a variety of loans to be transferred to their cards. So, let’s say you have a personal loan for $10,000 at an interest rate of 8 percent. For a three year term, you’re looking at a payment of about $313 every month until the loan is paid off. Let’s say by the end of year one you get it down to about $6,200 and you are ready to pay it off. Transferring to a zero percent interest card would give you the chance to pay the loan off and avoid over $500 in added interest.

Should you do a balance transfer?

A balance transfer gives you a bit of breathing space to pay off your debt. Here are some things to consider before you jump in.

How’s your credit?

Your credit score is a very important factor in being able to get a balance transfer card. Balance transfer cards usually require a credit score in the good to excellent range (670-850). If your credit score doesn’t meet that criteria, you’ll have to do some work to raise it before this is an option. Another thing to keep in mind is the effect a balance transfer can have on your credit score. Applying for a new balance transfer credit card will trigger a hard inquiry into your credit report. A hard inquiry affects your FICO score for a year. Another thing to think about when doing a balance transfer is if you will keep or close your old accounts. Closing an account affects your credit utilization and your credit history. All of these factors affect your credit score.

Do you have a repayment plan?

Doing a balance transfer without a repayment plan is a recipe for disaster. In order for a balance transfer to help you get out of debt, you have to have a budget and a repayment strategy. Bankrate offers a variety of calculators, like a balance transfer calculator and a home budget calculator, that can help you crunch the numbers. Once you have your budget and repayment plan in place, it is important that you stick with it. This will mean staying away from creating new debt. Your balance transfer may be coming in at zero percent APR, but oftentimes new purchases will have a shorter zero percent APR period or start at a normal purchase APR.

Is the transfer debt manageable?

Before you do a balance transfer, it is important to take a look at your repayment plan and make sure that you can manage your monthly payments. The draw of a balance transfer card is the introductory zero percent APR period, but that intro period will eventually end. At that point you’ll be dealing with a variable APR. Can you repay the debt before that happens? If not, can you manage your monthly payments at the regular APR? If your answer to these questions is no, you may need to consider a different option for your debt, like credit counseling or applying for a personal loan.

How to select the best balance transfer card for you

Once you’ve taken a good look at your finances and come up with a strategy for paying off your transferred balance, it’s time to look for your balance transfer card. A key factor in choosing the right card is going to be the zero percent APR period. The average zero percent APR period for balance transfer cards is 15 months. However, if you’re looking for a longer period, the Citi Simplicity® Card offers one of the longest, coming in at zero percent for 21 months on balance transfers (then 14.74 to 24.74 percent variable APR). If you have good to excellent credit and need a longer repayment period, this card is a great option.

Another factor to consider when selecting a balance transfer card is the regular APR rate. It’s likely that you will keep your transfer card once you have used it to take care of your debt. If this is the case, you’ll want to make sure that your normal APR is as low as possible. This is also the case if you feel you may need longer than the introductory APR period to pay off your balance. The Discover it® Balance Transfer is a great candidate for an ongoing credit card with its variable 13.49 to 24.49 percent APR.

One last thing to consider when thinking about the longevity of your balance transfer card is whether there is a rewards option. Some options in that category are the Capital One® Quicksilver® Cash Rewards Credit Card, which offers cash back rewards at a rate of 1.5 percent on every purchase, and the Blue Cash Everyday® Card from American Express, which offers 3 percent cash back for purchases at U.S. supermarkets  (on up to $6,000 per year in purchases, then 1 percent).