After years of bad credit that my crazy and shopaholic ex-wife left me with, I cleaned everything up and am now getting letters from credit card companies offering me zero percent. I don't have any balances to transfer over, but my cards are open. Should I take the zero percent deals? The cards I have are a Capital One Platinum at 24.9 percent and a Navy Federal Credit Union card at 18 percent. – Terrance
Balance transfers can be a fantastic way to avoid paying expensive finance charges that you'd otherwise pay on existing balances with higher interest rates. To know how much cash you could save, all you would have to do is plug the numbers into an online calculator (such as this one) that's designed to give accurate cost comparisons.
For example, let's say you owe $5,000 on that Capitol One credit card, but can't afford to pay it off quickly. With an interest rate of nearly 25 percent, the fees would really pile up. However, if another bank were to let you transfer it to their card and charge you nothing for, say, six months, you could come out ahead financially. They'd charge a balance transfer fee (around 3 percent or 4 percent of the debt is common), but you'd save around $400 in the first six months. Not bad!
Then again, you have no debt, so what's the point?
It's great that you've paid down whatever you did have and are in the clear. That's put you in a preferable position. Not only are you free of finance fees, but you've almost certainly increased your credit rating. Other lenders have been checking your credit file and are quite aware of all the good you've done lately. That is why they're trying to woo you.
Before you jump ship, though, reach out to your current creditors and ask them to reduce the interest rates on your current cards. Explain what a good credit card customer you are: After a difficult point in your life, you managed to get back on your feet and repay your debts. Now you owe nothing and are ready to charge again, but this time without the financial complications of a spendy ex-spouse and a costly divorce. You're receiving enticing offers from other credit card companies but would rather not switch over. What can they do to keep you? Ask for their best rates and see what they come up with.
If your current creditors agree to lower the interest rates to a degree that makes you happy, wonderful. Stay put. If they can't, start shopping around. The deals that are coming to you sound swell, but they are only the tip of the credit card iceberg. Many more exist, so look around.
To focus your search to the best products you're qualified for, you'll need to know your FICO score. Go to myFICO.com to order it for about $20. A FICO score between 350 and 640 is considered poor, 640 to 680 is fair, 680 to 720 is good and anything higher than 720 is excellent. When you have a handle on your scores, just apply for the right card in your category.
Remember, Terrance, that interest rates — high or low — matter only if you keep a running balance. It's more important that you concentrate on charging within your means and repaying the balances on time every month. Thankfully, you now have total command of your cards and don't have to worry about another person charging more than you can afford to repay.
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