Avoid the pitfalls and create a plan to pay off your debt with 0% APR offers.
- Balances outstanding at the end of the promotional period are subject to prevailing interest rates.
- Paying a balance transfer fee might make sense if the cost is less than what you would pay in interest charges to pay off your current card.
- Never miss a payment, or you could cancel the offer’s introductory interest rate.
Banks love it when customers sign up for balance transfer credit cards. Although balance transfer offers seem helpful, banks make more money when customers don’t repay the transferred debt within the stipulated time. The hope is that customers continue to go into debt at high interest rates.
However, according to financial expert Erin Lowry, following specific guidelines and having a plan will help you pay off debt aggressively with 0% APR balance transfer offers.
What is a balance transfer?
A balance transfer moves the balance from one credit card or other eligible account to another credit card. Typically, balance transfer credit cards offer an introductory APR of 0% for extended periods, up to 12 months or more. The idea is that consumers can save money on interest charges by transferring high-interest debt to a card that offers 0% APR.
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More: Consolidate your debt with one of these top-rated balance transfer credit cards
If you do not repay the transferred balance during the offer period, the interest rate goes from the promotional rate to the current rate, which could represent a significant increase. In some cases, the card issuer may charge you the then current interest rate on the entire transferred balance.
When balance transfers are good to use
Balance transfers are a good option if you have credit card debt with high interest rates. It’s hard to pay off debt when you’re constantly dealing with high interest charges.
You can find competitive balance transfer deals by shopping around outside your bank or current card issuers. Typically, a bank does not allow you to transfer balances from one card to another within its own credit card ecosystem. You must be a new customer with an issuer to qualify for most balance transfer offers.
Balance transfers are a good option according to Lowry if “you don’t struggle with impulse buying.” If getting a new card tempts you to spend beyond your means, it’s not worth it. You could end up accumulating new purchases and further increasing your card debt.
Does paying a balance transfer fee make sense?
Credit card companies usually charge an upfront fee to transfer a balance to your new credit card. Balance transfer fees vary depending on the card or card issuer, but are usually around 3% to 5% of the transferred balance.
So, is it worth getting 0% APR if you have to pay a fee? Everything depends. You could save money in the long run by transferring your balance if the money saved on interest charges exceeds the cost of fees.
Tips for using balance transfers to pay off debt
If you can stick to paying off your card balance during the promotional period, you’ll enjoy big savings with no interest charges. Use the tips below to stay the course and avoid high interest charges and penalties.
Track your payments
You may qualify for a balance transfer card with an introductory APR offer of 12, 15, or 24 months. Don’t get caught in the trap of thinking you have enough time to make payments. Instead, make a plan and stick to it, making payments on time each month. Some card issuers will override the promotional rate if you miss a payment.
Do not use your card for purchases
Avoid using your balance transfer card for new purchases. This defeats the purpose of getting the card in the first place – to pay off existing debt. Lowry says, “Don’t put it in your wallet. Don’t link it to your Netflix account. Don’t spend a dime on this card!” Use it for the balance transfer promotional offer and nothing more.
Check the Fine Print
Always read your card’s terms and conditions to see if there are any actions that could void the promotional rate or cause you to incur penalties.
If you have existing credit card debt, taking advantage of 0% APR might be a smart money move. Compare the durations and fees of balance transfer offers to find the one that suits your needs. Make sure you can pay off the balance during the promotional period to avoid additional interest charges.
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