Welcome to the fourth installment of The Best Credit Cards in America. To start the year off on a good note, this is a special “get out of credit card debt” edition.
I decided to focus on balance transfers because credit card debt is such a huge problem in the U.S., especially right after the holidays. A very recent Bills.com survey showed that the average credit card debt is $5,500. That’s a lot of money to have on a credit card while the interest clock is ticking away.
Look, I know what this feels like. I’ve actually been in your shoes. There’s a heavy feeling to debt. It colors everything you do and affects all of your decisions. When you get rid of it, it feels fabulous!
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A good option for people looking to pay off credit card debt is to make a balance transfer to a card with a zero percent intro rate. But a balance transfer won’t work for everyone. If your debt is huge or you simply can’t make any payments, contact the National Federation for Credit Counseling and ask for some help. Really, you don’t have to go through this alone.
Before we get to the winners, let’s take a look at what you need to do to make your transfer a success:
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- Know what your FICO score is. The best offers require excellent credit. (You can check your credit score for free or you can compare paid credit score monitoring products on Credit.com)
- Read the fine print. Yuck, I know. But you need to know what the balance transfer fee is and what the deadline is for making the transfer.
- Decide how long you need to pay it off. Factor in the transfer fee (unless it’s been waived). Example: A $5,000 transfer with a 3 percent transfer fee means you need to pay off $5,150 ($5,000 × .03). If you get a 21-month intro period on a $5,000 transfer, you’ll have to pay $238.10 per month (5,150 ÷ 21).
- Make a vow that you won’t use the card to buy new stuff. Your goal with your new card is to pay off the debt. Period.
Okay, let’s get to it. The category winner is the card that scores the highest number of points based on a unique, 41-factor formula that I designed. The formula gives each card a “benefits/rewards score” and then subtracts the “costs score.”
The Winner Citi Simplicity Card
This card is perfectly named. I spend hours (and hours!) every week reading the fine print on credit cards. After reading it for this card, I wanted to send a thank you note to Citi.
Why it won Best Credit Card in America:
The benefits: You get an 18-month zero percent intro APR on balance transfers. You must complete your balance transfer within four months of opening your account. It’s a good card for anyone who has struggled to pay bills on time. There are no late fees and no penalty rate so this card is a little forgiving if you make a mistake.
The costs: The balance transfer fee is 3 percent. You get an 18-month zero percent intro APR on purchases. After that, you get a 12.99, 17.99 or 21.99 percent variable APR. There’s no annual fee. Foreign transaction fees are 3 percent.
(This article was updated Feb. 14, 2012 to reflect a change in the Citi Simplicty Card’s balance transfer offer. The zero percent intro APR now lasts 18 months, not 21 months as it was when this article was originally published.)
1st runner up Discover More Card – 18 Month Promotional Balance Transfer
This zero percent intro period is shorter, but if you can swing it, you’ll get out of debt faster. It’s also a good card to have going forward. It has rewards and the starting variable APR is a low 10.99 percent.
Why it won 1st runner-up:
The benefits: You get an 18-month zero percent intro APR on balance transfers. You have until July 10, 2012 to complete the transfer. After you pay off your balance, you’ll have a rewards card. You’ll get up to 5 percent cash back on rotating categories, plus up to 1 percent on other purchases. The grace period is 25 days, which is pretty good. This gives you a little extra time to get those payments in if you’re having cash flow issues. There are also no foreign transaction fees.
The costs: The balance transfer fee is 3 percent. You get a six-month zero percent intro APR on purchases. After that, you get a variable APR between 10.99 and 20.99 percent. There’s no annual fee.
Tie for 2nd runner-up: Discover More Card – $0 Balance Transfer Fee!
UPDATE 3/1/12: Sorry, this card is longer available for consumers.
It’s great to see a card waive the fee. You save money on the transfer fee and this is savings you can toss at your debt. Now, the “cost” of the waived fee is that you only have 12 months to pay off the balance.
Why it tied for 2nd runner-up:
The benefits: You have until July 10, 2012 to complete the transfer. If you can pay your balance off in 12 months, this is a great deal. This approach is like ripping off a Band-Aid in one stroke. It still hurts but you get the pain over with in a hurry.
When your balance is paid off, you’ll have a rewards card to use. Like the first runner-up, you’ll get up to 5 percent cash back on rotating categories, plus up to 1 percent on other purchases.
The costs: The balance transfer fee is waived. You get a 12-month zero percent intro APR on purchases. After that, you get a variable APR between 10.99 and 19.99 percent. There’s no annual fee and no foreign transaction fees.
Tie for 2nd runner-up: Discover Motiva Card
There’s an official category for credit cards called “cards with good intentions.” Okay, I totally made that up. But if there were such a thing, this card would qualify. This card rewards you for paying your bills on time.
Why it tied for 2nd runner-up:
The benefits: You get a 15-month zero percent intro APR on balance transfers. You do have to pay the 3 percent fee, but you get an extra three months to pay it off. You have until July 10, 2012 to complete the transfer. Once you’ve paid off the balance and begin using the card for purchases, you get up to 1 percent cash back.
You also get 5 percent cash back on the interest charges shown on your next billing statement if you pay your bill on time for six months in a row. I don’t encourage anyone to carry a balance, but if some financial disaster happens to you, it’s nice to know you can recoup a little of the interest paid.
The costs: The balance transfer fee is 3 percent. You get a 15-month zero percent intro APR on balance transfers and on purchases. After that, you get a variable APR between 10.99 and 20.99 percent. There’s no annual fee and no foreign transaction fees.
At publishing time, Citi Simplicity Card, Discover More Card – 18 Month Promotional Balance Transfer, Discover More Card – $0 Balance Transfer Fee!, and Discover Motiva Card are offered on Credit.com product pages and Credit.com may be compensated if our users apply for and ultimately sign up for any of these cards. However, this relationship does not result in any preferential editorial treatment.
Beverly Blair Harzog A consumer advocate, Beverly focuses on credit card issues and provides insight about current news that affects the credit card industry and consumers. She's a nationally recognized expert on credit card issues and is also the co-author of The Complete Idiot's Guide to Person-to-Person Lending. Visit Beverly at BeverlyHarzog.com.
{ 16 comments… add a comment }
Dear Sir,
My wife and I recently went to a time -share presentation. The time-share salesman told us that If we purchased points, they would help us use these extra points to help pay existing maintenance fees,etc. We were already what they called “V.I.P. status. Well, It has been two months since we purchased and, as you can imagine, most everything they told us were lies.
My question is. If we decide to walk away from all of the time share? HOW BAD WILL OUR CEDIT BE DAMAGED.
THANKS Don
Donald,
If you walk away from the time share, your credit may be significantly damaged. In addition, you may be sued for failing to keep up your end of the contract. It would be a good idea to consult a consumer law attorney to find out what your options are.
I agree with Gerri’s comment, walking away might make you feel better but you’re going to take a huge hit on your credit. Nobody wants to go the legal route, but it’s the best recourse you have at this time.
Balance Transfer really helped me to save on interest. With $5000 amount transferred, I saved around $740 interest paid in 12 months. Once the 12 months period ended, I will repeat the Balance Transfer process with other credit card.
Cenor–Thanks for sharing this. I love a success story! And kudos to you for having the self-discipline to make the balance transfer work.
When is it a good idea or bad idea to apply for a balance transfer card? I have 3 card balances at 23000. 2 of the cards have 11.9 rates, the other has a 16.99 rate. i am actively reducing the lowest balance, 16.99% card. My question pertains to the idea of getting a better interest rate, but seemingly going backwards by adding to my balance because of the transfer fee. Also, will doing this affect my credit score? (currently 761)
Thanks
Hi JMS-You have a great credit score and you should be able to get a better deal than 16.99%. You don’t say how much of the debt is on that card, but it’s a high rate so it’s a good idea to transfer it to a 0% balance transfer card. With your score, you should be able to qualify for some good cards.
You could also consider consolidating all three balances onto one card with a 0% intro rate. Transfer fees are around 3%. And yes, it’s hard to pay that. But run the numbers and compare the fee to the interest expense you’ll be saving.
Beverly’s covered the issue of interest rates and running the numbers, which is really the only determinant of how good a deal you’re getting at any given time.
I think the only time it’s a bad idea to do a balance transfer is when the circumstance that created the debt hasn’t changed, either from external (change in work or income) or internal (change in spending habits). If doing a balance transfer simply frees up available credit and habits haven’t changed to use that credit wisely, you’ll soon end up with another card that you’re carrying a balance on.
Hope that helps,
Jude
I have tried this & asking to have rates dropped by Citibank & Wells Fargo: both sttate they have no promotions @ this time. I have been with both >10 years. I am trying to get OUT of debt & rebuild my credit, but apparently, you have to have great credit to start with.
Sue,
Do you know your credit scores? Maybe a personal loan would be a better option for you to consolidated one or both of those balances.
I recently succombed to my mortgage co. offer for a very low rate to refinance. I finally agreed to check it out. Resulting from this inquirey I have had terrible repercussions regarding everything includingmy home insurance. I am never late in paying my obligations however I moved credit card balances on two cards to a 0% rate without using the balance transfer method .Even though I always pay promptly y credit score has dropped??? I was informed bc I applied for new credit cards within the last 18 mos it had this effect.
my credit score is a 722 i need to bump it up to a 730 (is that possible in a couple months)..will applying for another credit card affect my score?..i want to bring down my credit ratio down to 30% on the other cards..i have a mortage and a 26,000 car payment also.Thanx Bev
Hi,
I am curious to know what my best option is. I have about $10k in CC debt. Currently, I am paying about $400-500/month towards the debt. Unfortunately, being ‘young and dumb’ several years ago I co-signed on a car with my current boyfriend. Now, he’s helped to completely destroy my credit, having over a dozen late payments (30, 60 and 90 days) on the loan over the past two years or so. He has less than a year to pay on the car. I have asked and pleaded for years to be removed from the loan, but he simply doesn’t care. I can’t afford to pay the loan off and with all those ‘hits’ it feels like the damage has already been done. I’ve attempted to seek a loan to consolidate all the CC debt to make one payment, but obviously I get denied. I want to try and lift my credit score and I was wondering if I transfer my balances to a higher interest loan and still keep paying the $400-500/month, if that will in actuality increase my score quicker. Other than his late car payments, I have not been late on a single payment for anything in my name. Any thoughts would be helpful.
I currently obtained a position in a great carreer, moved to a new town, and am making more money than ever before in this new position, however,…i had been unemployed for 6 months proir to this. I made late ,and sometimes delinquent payments on three credit cards and all of my revolving accounts. My credit score has dropped from the 690-720 range down to the 520-560 range. The problem at hand is that: in order to be approved for the VA home loan, my credit score has to be at least a 640 (which is i guess about a 680-700 because banks use a diff. type of scoring???) but i dont feel that i can get my score up by 60+points in only a 3-4 month period. Are there any fast working methods to acheive a better score?
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I know I might be biased because I have a card from them, but have you ever looked into State Farm Bank’s cards? I’m I missing anything with them? Seem like they match up pretty good with your top two card companies.