Credit card balance transfer offers are quite appealing at first glance, as they grant debtors temporary relief from high APRs. However, not all offers are created equal. Many of them have fees and clauses that can increase your outstanding credit card balances if you don’t read the fine print and use the card properly.
Below are a few factors to consider when assessing credit card balance transfer offers.
Introductory Interest Rate
The lower the introductory APR, the more favorable the balance transfer offer. You must also consider the longevity of the offer to ensure that you will derive the greatest benefit from it. An introductory rate of 0% on a balance transfer that is valid for three months may seem beneficial, but this is only the case if the APR will remain low after the introductory offer expires, and the standard card fees are affordable. On the other hand, if the APR reverts to a percentage that is comparable to or higher than what you are currently paying, it is wise to examine other offers. Keep in mind that if you make a late payment, the issuer might revoke the introductory offer and give you a penalty APR, which could derail your get-out-of-debt plan. So be sure to always make your payment on time.
Along with the introductory APR and its duration, you will also need to consider accompanying fees. Most balance transfer offers come with a flat fee of 2%-5% of the amount being transferred to the card. In addition, annual fees are not uncommon, and you should ensure the cost outweighs the benefits, as you will be responsible for paying the annual fee whether or not the card is in use. Another item to consider is dormancy fees if you no longer plan to use the credit card once the balance transfer offer expires and the debt is paid off. It is always possible to close out the credit card, but that can lower your credit score if it raises your credit utilization significantly.
If the card automatically applies the promotional balance transfer APR to standard purchases during the introductory period, you may save a substantial amount of money on purchases that would otherwise be assessed the standard interest rate. However, this option should only be exercised in emergency situations, and not for shopping sprees — to ensure that you keep your debt under control while using the balance transfer offer to pay off your debt (not add to it).
Maximum Credit Limit
Depending on the credit limit you qualify for, it’s possible that you may be approved for less than the credit card balances you plan to transfer. However, if you are unable to find an offer that accommodates your balance and the accompanying fees, you may have to settle for transferring less of your debt for the time being, or shop for other offers.
The optimal solution is a credit card with no annual fee that offers the lowest promotional rate and transfer fee for the longest period of time. Although credit card balance transfer offers can save you a lot of money on interest, it’s best to only use them if you have a plan to get out of debt before the promotional offer ends, or shortly thereafter.
And before you apply for any credit card, it’s important to be aware of your credit score, as that will inform what kind of credit card you’ll be approved for. For example, if you apply for a card that is generally given to people with “excellent” credit, but your score is in the “fair” range, you likely won’t get approved, or you could be given a card with a higher APR.
Checking your credit scores can help you be better informed when you shop for credit cards (or loans), and checking them regularly can help you track your progress as you pay down your debts. Credit.com offers a tool that gives you your credit scores and a breakdown of your credit profile – for free – to help you figure out what you need to work on to build your credit.