How to choose a balance transfer credit card
As the name suggests, a "balance transfer" allows you to transfer your outstanding balance owed to your current credit card issuer to another credit card at a lower interest rate. Balance transfers effectively reduce the amount of interest you pay while carrying a monthly balance on your credit card.
So in a nutshell, balance transfers save money. By reducing your interest payments, more of your monthly payments can go towards paying down the balance. This also means you’ll be debt-free sooner.
When evaluating balance transfer offers, there’s a few key points to pay attention to:
- Introductory rate: The “teaser” rate offered by the bank to entice you to sign up. The lower the rate, the better. Balance transfer credit cards usually range from 0% to 9.99% when it comes to introductory rates.
- Introductory period: Next, find out how long you will receive the introductory rate. Longer is better. You will have more time to pay down your debt at the low rate. Be aware that often the purchase APR is different from the balance transfer APR. You might get a low rate for 12 months on balance transfers, but a regular rate on purchases.
- Balance transfer fees: Most, if not all, credit card companies charge a fee for transferring a balance. Normally, this is a percentage of the total amount you transfer, usually between 1% and 3%. Crunch the numbers to make sure you’ll come out ahead. Most of the time the interest savings outweighs the fee.
- Regular rate: Find out what your regular rate, or “go-to” rate will be after the intro period ends. This is a good way to prepare for what’s next. Also be aware that any new purchases will be at this rate.
Getting the most out of a balance transfer requires a plan. The goal is to pay down your debt as quickly as possible during the introductory period. As you work to reduce your debt don’t take on new expenses. Be prepared for what happens when the into rate expires so there’s no surprises.