We have approximately $7,700 in MasterCard debt at 9.9 percent on a low-interest card. We're on a fixed income in our late 60s. Which card would you recommend we transfer our balance to? I'm looking for a grace period of no interest on a transfer, plus some cash-back return on our gas and grocery expenses. — Dave
The good news is that there are cards that feature your requirements (a 0 percent APR promotional period and some rewards). Before we dive into your options, however, there are some things you need to think about when it comes to balance transfers.
As credit cards go, a 9.99 percent APR isn't too shabby. So when doing a balance transfer, your first objective should be to avoid getting stuck with a higher rate when the promotional period expires.
Card issuers can make those attractive 0 percent balance transfer offers because, in the long run, many people end up with a balance after the promotional period expires. This is especially the case when you're using the balance transfer card for purchases — which you say you intend to do. The charges you add to the card can make it difficult to concentrate on paying down the transferred balance and, after the promotional period expires, a big chunk of the original balance is still there — and you're looking at some high interest charges.
Speaking of interest, there's another point that's easy to overlook when it comes to balance transfers. The regular APR rates on balance transfer cards are usually listed as a range — from, say, 12.99 percent to 21.99 percent, depending on your creditworthiness. You might think you'll end up with the lowest rate (12.99 percent), but you could end up with a higher one. It's just not possible to predict when you apply.
In short, it's really easy to get into trouble with balance transfers. If you transfer the entire amount, and still carry a substantial balance after the 0 percent APR offer expires, you could end up paying twice as much in interest on the remainder of the balance as you're paying now. And you don't want to get yourself into a situation where you have to keep applying for balance transfer cards to avoid paying interest.
The best strategy is to only take out a balance transfer in the amount you can pay off by the end of promotional period. Calculate how much you can pay each month. Then multiply that by whatever the length of the balance transfer deal is.
For example, if you can pay $200 each month on a balance transfer lasting15 months, transfer $3,000 and leave the rest on your low-interest card. This may not be as exciting as transferring your entire balance, but this realistic approach will ensure you pay down the transferred balance in time and keep the rest of your debt at a nice, safe interest rate of 9.9 percent.
If you use the balance transfer card for purchases, make sure you're paying those off in full each month — as well as diligently putting another $200 toward the transferred balance.
As long as you can do those things, I'm recommending the following cards for you:
The Blue Cash Everyday card from American Express: This card gives you a 0 percent intro APR on purchases and balance transfers for 15 months with a balance transfer fee of 3 percent. After that, the APR will be a variable rate ranging from 12.99 percent to 21.99 percent, based on creditworthiness.
The good news is that after you make $1,000 in purchases in three months, you will earn a sign-up bonus of $100. That would cover a 3 percent transfer fee for a balance transfer up to $3,333.
The cash-back earnings with the Blue Cash Everyday card are some of the highest in the industry: 3 percent at U.S. supermarkets, 2 percent at U.S. gas stations and select U.S. department stores and 1 percent on other purchases. There are caps on the rewards you earn, though, so read about them carefully.
The Capital One Quicksilver Cash Rewards card: This card offers a steady 1.5 percent cash back on all purchases, with no ceiling on rewards. While those earnings aren't quite as high as those of the Blue Cash card, you don't have to worry about spending in certain categories — or about rewards caps. You also get a $100 bonus after you spend $500 on the card within the first 3 months. The 0 percent APR promotional period is 12 months, with a 3 percent balance transfer fee.
Slate from Chase: Although this card doesn't offer cash rewards, I'm recommending it in case you decide to hone in on erasing your balance before finding a card that lets you earn rewards. If you transfer a balance within 60 days of opening the card, the Chase Slate card currently waives the balance transfer fee. The 0 percent introductory offer lasts 15 months on balance transfers and purchases — but since there are no cash rewards, there is no reason to use the card for purchases.
If you have the discipline to pay off new purchases in full each month on a balance transfer card and pay off the balance transfer amount within the promotional period, the two rewards cards above are good options. If you want to keep things simple while you delete your debt, the Slate card is the better option.
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