Finding the Best Balance Transfer Credit Cards
By Eva Norlyk Smith, Ph.D.
May 22, 2009
In times of economic downturn, it is more important than ever to manage your finances wisely and cut down on unnecessary expenditures. If you have several outstanding credit card balances, now is a good time to review your credit situation and consolidate your balances.
A great way to save money is to transfer high interest credit card balances to 0% balance transfer credit cards. Let’s say that your current credit cards are at a 15 to 21% APR. That means that for every $1,000 you owe on your credit cards, a 0% APR credit card would let you save between $150 to $210 a year. That adds up to great savings!
When choosing among several 0% APR offers, the general rule of thumb is to choose the card with the longest 0% APR balance transfer offer and the lowest balance transfer fees. Of course, to get the best 0% APR deals, you have to have excellent credit rating. Still, balance transfer offers are so common these days that people with a good or average credit rating still have plenty of 0% credit card offers to choose among.
Most credit card issuers charge a 3% fee to do the balance transfer. This makes a 0% balance transfer offer that lasts for 12 months effectively an offer for a 3% APR. If the 0% APR only lasts for 6 months, the effective interest rate on the balance transfer is 6% APR. Keep this in mind when you look through the different credit card offers. There are still a few credit cards which will cap the balance transfer fee at, for example, $75 or $99. If you are doing a large, one-time balance transfer, this can save a lot of money.
Many 0% balance transfer credit cards also offer 0% APR on purchases. This is a great added benefit, if the duration of the 0% APR offer is the same for both balance transfers and purchases. If the 0% purchase APR expires before the 0% balance transfer rate, it is best not to use the card for purchases. Credit card payments are applied first to pay down the balances with the lowest interest. Once the 0% APR for the purchase portion of your charges expires, the purchases would accumulate interest at standard rates, which could be 19.99% or higher. You wouldn’t be able to pay this balance down until the remainder of the 0% APR balance transfer is paid in full.
For some balance transfer offers, the 0% APR is offered both for balance transfers and for direct deposits into your checking account. This gives you the option of using the 0% APR offer for other things, including paying down other loan balances. In other cases, you need to make the balance transfer when you open the account to get the best balance transfer deals, so be sure to read the terms and conditions carefully.
Last but not least, be sure to have an exit strategy in place before transferring balances to 0% APR credit cards. Otherwise, you could end up paying high interest rates at the end of the 0% APR period, which could quickly undermine your savings.
For some of the best 0% balance transfer offers, look through the card offerings of some of the major banks, including Advanta, Discover Card, Bank of America, Citicard, American Express, and Capital One.