Credit card debt can feel all-consuming. For many of us, it’s what that knot of fear and anxiety that lives in the pits of our stomachs—and comes to life in the dead of night when we’re trying to sleep—is made of.
Credit card debt is easy to rack up and can feel impossible to pay down. You’re basically paying money to owe money. In simpler terms still: It sucks.
Odds are that you’ve seen offers for credit cards offering balance transfers with super low interest rates. If you have an interest rate anywhere above the zero to three percent those cards are offering, you’ve probably given them a little thought. But maybe you’ve reconsidered because it sounds like it might be a predatory lending practice in relief’s clothing. Or you’re worried there is some fine print you aren’t seeing. After all, what exactly is a credit card balance transfer? Is it actually a good idea? Or are you going to regret it in the long run?
Well, we’re glad you asked.
What is a credit card balance transfer?
Basically, a balance transfer is when you repay the money you owe on one credit card with a new lower-interest rate credit card. While transferring your balance doesn’t decrease the amount you owe, the lower interest rate does save you money in charges and therefore can help you pay off your debt faster.
Let’s say you have $8,000 in credit card debt. According to Wallet Hub, transferring to a zero percent balance transfer card could save you about $1,000.
Sounds great! Where do I start?
As with any change in your life, it’s important to start by looking within.
Start by gathering as much information as you can about your current credit card situation. In order to do a transfer, you’ll need to know how much you owe and your current interest rate or annual percentage rate (APR). This information will help you choose the right card for you and your debt.
Also, check your credit score because the lower the APR rate, the better credit you’re going to need. A zero percent balance transfer credit card will usually require good to excellent credit for approval. Knowing your score before you apply will save you the hassle of applying for cards that aren’t the right fit.
Which card is right for me?
Choosing the right balance transfer card really depends on your financial needs, but the idea is to find a card with a low APR and a low or zero balance transfer fee.
• APR percentage
A lower APR is the whole point of doing a balance transfer, but it’s important to be aware of how long a card’s introductory or promotional APR period lasts. On average, these rates last somewhere between nine and 21 months. The longer the “introductory rate” is, the more money you stand to save in the long run. But if you don’t pay it off before the rates go back up, the transfer could end up costing you money. Cards with low introductory balance transfer interest rates typically have *high* regular APRs.
So, when looking at a card, consider how much you’ll need to cough up each month to pay off your debt before the low interest intro period is up. If it’s too much per month, look for a card with a longer promotional period. You might also consider transferring a lower balance (more on this later).
• Balance transfer fee
A balance transfer fee is the credit card company’s way of offsetting the risk that comes with assuming your debt and having you assume some of the cost of processing the transfer. This of course makes sense if you’re a credit card company, but for us humans, fees are the worst. Avoid fees whenever possible.
Most balance transfer cards have a balance transfer fee of three to five percent. So, when looking at a card, read the fine print to make sure the fees are low enough to make the transfer worth it.
For example, let’s say you currently have a card with a 15 percent interest rate and you’re applying for a card with 11 percent interest. If that card has a five percent balance fee, then you’re better off keeping your balance where it is.
If you’re looking for a zero percent APR and a zero percent balance transfer fee, you’re going to need excellent credit. Otherwise, keep in mind that for the most part, a zero fee card will carry a slightly higher APR and vice versa.
There are a a lot of cards out there, but Nerd Wallet’s and Simple Dollar’s lists of the best balance transfer cards of 2018 are great places to start gathering information.
How much should I transfer?
A balance transfer doesn’t necessarily mean taking the full amount you owe and moving it somewhere else. For a lot of people, doing a partial transfer can actually be advantageous. Think about it: a lower balance means you are more likely to be able to pay off your balance within a low APR introductory period.
So, once you find the card that best meets your needs, try working backwards to find the amount you should transfer. Ask yourself how much you can comfortable afford to pay in monthly payments and then multiply that amount by the number of months in your potential card’s introductory period. Voila: your partial transfer number.
Try using Credit Karma’s debt repayment calculator to make things simpler.
What’s the downside?
Paying off your balance within the low interest rate period has no downside. Basically, if you treat a balance transfer as way to pay off debt, then you’re golden. But if you look at it as a way to continue to spend and rack up more debt, then you’re in for a world of trouble.
Assuming that if you don’t pay off your debt by the time your zero percent rate period ends you can just transfer it to a new zero percent card is a bad plan. The availability of those types of deals is never a given. Don’t get stuck on the other side with a high rate and nowhere to go. Plan to pay off your balance in the intro period and you’ll be fine.
Now what?
Apply! Once you’re approved, go online or call and request a balance transfer from your new credit card company. They’ll need the account numbers for your old card and the amount you want to transfer to handle the transfer for you. But, according to Bank Rate, it’s important to keep making payments on your old card until you can confirm the transfer has gone through.
From there, follow your payment plan, start paying down your debt, and enjoy that low low interest rate.
Reminder: Always speak to a licensed financial services provider or specialist before making decisions that could affect your financial wellbeing.
