Thinking About a Credit Card Balance Transfer?

When you receive credit card offers in the mail, you’ll notice they tend to fall into two different categories. The first category entices you with rewards offers such as travel points or cash back. The other category focuses more on low interest rates, and most often promotional rates. “Zero percent for six months for balance transfers!” they offer, or something similar. Some might even extend the promotion to purchases, or offer to send you promotional checks you can use as you like. For people with credit card debt or large purchases in the near future, these offers are certainly appealing. While they can benefit some consumers, it’s best to consider the offer as a whole before you take advantage of it.

How long does the offer go for?

Is the offer good for six months, a year, or longer? Does it start from the day you accept the offer or does it go until a specific date? For instance, an offer received in June will appear to be a six month promotion if it specifies an end date of December 31st. However, if you don’t accept the offer till the end of July, you really only receive the promotional rate for five months. That’s why it’s important to find out a definite end date for the promotion.

Is there a transfer fee?

If the promotion applies to balance transfers or promotional checks, is there a fee involved for accepting the offer? Most balance transfers and convenience checks charge a fee based on a percentage of the transaction, usually three or four percent. If you’re transferring a balance of $1000 for six months at zero percent interest, will you save enough to make up for a 3% fee ($30)?

What will the rate be after the promotion is done?

Credit card rates usually climb drastically after the promotional period. You could very easily go from a 5.99% promotional rate to a 17.99% interest rate for any remaining balance. If you’re transferring a balance from another card, is the rate on your current card less than the regular rate on the new card? If so, you could end up spending more in the long run after the promotion is over.

What will my payments be, and how are they applied?

Find out what your expected payments will be each month. They’re generally a certain percentage of your balance. More importantly, find out how they are applied if you have both purchases and a balance transfer to be repaid. Often promotional rates don’t apply to new purchases, so you could be accruing a balance at the regular rate on top of paying your transferred balance at the promo rate. Does the card pay off your balance transfer or your new purchases first? In other words, does it pay on your low promotional rate or your regular interest rate? If you want to avoid this confusion, don’t use the new credit card for purchases until the balance transfer is paid off. Then you can guarantee your payments are going towards the balance transfer instead of new purchases.

Is there any way I could lose the promotional rate?

Most card issuers warn you in the fine print of the offer that if you make a late payment your promotion will be done. Your remaining balance will start accruing interest at your regular rate, or potentially at an even higher penalty rate. This is usually the only way your rate could change early. If you have the option of setting up automatic payments to the card, this is the best way to avoid losing your promotional rate before the end date.

Is this the best offer for me?

If you receive an offer from a credit card you already have, call them to see if they have other offers available. Your credit card is probably sending you one of their best offers, but they may have other ones better suited to your circumstances. For instance, they might send you an offer of 3.99% for 18 months with a 3% fee. However, if you call they may also have an offer over the phone of 1.99% for 6 months with no transfer fee. The promotion isn’t available as long, but it’s at a lower rate and doesn’t charge a transfer fee. There’s no guarantee of a better offer, but it doesn’t hurt to check.

Have I opened several cards recently?

Be careful about opening credit cards frequently to get promotional rates. Opening several cards in a short time frame can hurt your credit score. If your credit score drops enough, you’ll stop receiving promotional offers at all, and you’ll have more trouble getting approval for a big transaction such as a car loan. It’s not worth saving a little bit of money if it’s going to cause long-term damage to your credit

These factors may seem like a lot to consider, but this isn’t meant to discourage you from using a promotional offer. You can definitely save yourself money and pay off debt faster if you use these offers wisely. The important thing is to be fully informed about the offer before you make a decision. Be a savvy consumer and use promotional rates to your financial advantage.


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