If you are trying to pay down your debt, a balance transfer might be the best option. A lower interest rate will allow you to make larger payments on your principal, which means that you will pay off your debt faster — and pay less in interest charges.
However, sometimes a balance transfer doesn’t always make the best sense. The following pros and cons of a balance transfer may help you determine if it will really work for your financial situation.
How Low is the Intro Rate?
The first question to ask is how low the interest rate is. You want to figure out how much you will save in interest payments. Some credit cards offer intro rates of as low as 0% and you can usually find low interest credit cards for 1.99%, 3.99% and 5.99%. The bigger the difference between your current interest rate and the low interest rate credit card, the more money you will save.
How Long Does the Intro Period Last?
A credit card intro period doesn’t last forever. Eventually, you wil have to pay the regular interest rate for the credit card. Take into consideration how long you will pay the low rate. Some of the lowest rate cards have an intro period of as little as six months or 12 months. However, some cards, like the Capital One SmartLine Platinum MasterCard, have an intro rate that lasts three years. The interest rate is a little higher, but if you have a lot of debt, having the guarantee of a low rate for three years might be more beneficial in the long run than having 1.99% for 12 months and then having to pay the 17.99% regular rate for the rest of the time. Weigh the long-term impact.
Balance Transfer Fee
Finally, consider the balance transfer fee. Many low interest credit cards have a balance transfer fee of 1%, but there are some that don’t charge a balance transfer fee — especially if you apply for the transfer when you apply for the credit card. Figure out how much it would cost you to transfer your balance, and see if your savings would be worth it. However, with the low balance transfer rate you can get with most Canadian credit cards, it is usually worth it.
You need to make sure that you weight your options before transferring your credit card balances. Look at what’s available to you, and consider which card is most likely to help you accomplish your debt reduction goals.