When you have ongoing credit card debt, the Annual Percentage Rate (APR) that determines how much interest you pay can seem downright huge. A lot of consumers in your position use a special type of credit card to dial that percentage down to zero.
A balance transfer credit card lets you transfer debt from one or more credit accounts to the new card. The best balance transfer cards offer a lengthy introductory period with 0% APR, providing a window to pay off the combined balances from the other cards interest-free.
When your APR suddenly goes from double digits to 0, debt consolidation can become a lot simpler. However, you should take the time to get informed about the drawbacks of balance transfer credit cards as well as the benefits.
Choosing a balance transfer card
Here’s a list of some things to consider as you compare balance transfer credit cards:
- Length of the 0% APR introductory period
- APR after the introductory period ends
- Whether the card charges an annual fee
- Balance transfer fees
- Rewards programs and other perks
As with any credit card, be sure to read the terms and conditions before getting a balance transfer credit card.
Use your balance transfer card effectively
With a card offering an intro period of 0% interest, debt consolidation or debt reduction should be your primary concern. Be careful about using a balance transfer card to make purchases, as you would with a regular credit card.
You’ll want to avoid adding to the balance you’ve transferred. The idea is to use that introductory 0% APR to erase the debt you’ve built up on another card.
Pros and cons of 0% interest debt consolidation
The advantages of using a balance transfer credit card to consolidate debt include:
- You have the potential to save money on APR and late fees from your current credit card balances.
- You get the simplicity of making one monthly payment with the balance transfer card rather than multiple monthly payments for all your other cards.
- Some balance transfer cards let you transfer other kinds of debt, including loans, in addition to outstanding credit card balances.
- Certain cards include rewards programs such as cash-back points.
The disadvantages of balance transfer credit cards include:
- The zero-percent APR offers are only temporary (typically lasting about a year but in some cases as long as 18 months or more).
- Many charge a fee for every balance you transfer, either a percentage of the transfer or a flat fee.
- You may need good or even excellent credit to qualify for a zero-percent offer.
- Transferring a balance doesn’t eliminate your debt. You still have to pay off the outstanding balances you’ve transferred to the new card.
Taking control with 0% debt consolidation
Despite the benefits of temporary 0% interest, debt consolidation isn’t one-size-fits-all. If the debt you want to transfer exceeds your credit limit, a balance transfer card might not offer the best solution.
Whichever financial tool you choose, the goal remains the same: to get your outstanding, high-interest debt down to 0. Debt consolidation has a number of possible solutions, but the only outcome you should accept is getting your debt under control. A balance transfer credit card could help you get there.
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