Many credit card companies offer 0% APR on balance transfers for new credit card accounts. If you can find a credit card company that offers a 0% rate on balance transfers, you may be able to save yourself money in the long run.
Balance transfer credit cards aren't a specific type of credit card; instead, they are a credit card designed for balance transfers with 0% interest rates on the transferred balance. A balance transfer allows you to transfer credit card balance from one card to another in order to pay a lower interest rate on the new card. Compare balance transfer credit cards below.
How does a balance transfer credit card work?
If your current credit card has a very high APR (annual percentage rate; the annual interest rate on an outstanding balance), then you may find that your credit card increases quickly.
An average APR is around 15%. If you have a 15% APR and $1000 of outstanding debt, you will owe your credit card company at least $150 in interest at the end of the year. If you paid nothing and were charged no penalties or fees for late payments, you total debt would be $1150.
You can end up accumulating a lot of extra debt because of a high APR. If you think your APR is too high - or you want some time to repay your debts without paying interest - consider a balance transfer.
Balance transfer credit cards offer low introductory rates on balance transfers to encourage people to switch credit card services.
You sign up for a new credit card with that company, and the balance from your old card is absorbed into the balance for your new card. You usually also get a grace period of 0% APR for your balance transfer, meaning that you will have a certain amount of time in which your transferred balance won’t collect interest. Sometimes, this can be as long as one year!
Depending on the size of your transferred balance, you may be able to pay down your debt during the grace period. At the very least, you will likely be able to decrease the size of the debt before you’re obligated to repay interest.
Your credit card charges you interest only on outstanding balances (basically, the amount of money that remains on your credit card from month to month), so a great way to avoid interest payments with a credit card is to pay down your balance to 0 at the end of the month.
Consolidating your debt with balance transfers
Balance transfers are often used to consolidate credit card debt onto one card. This can be a good or bad thing.
A balance transfer to consolidate your debt is good if you have:
A 0% balance transfer fee
0% APR grace period
Ability to repay your debt within the grace period
If you cannot repay your debt during the grace period, you should consider other alternatives for debt consolidation. Credit cards do not offer low APRs compared to personal loans or other debt consolidation methods. Furthermore, consolidating your debt onto a different credit card may enable you to get into debt again, by clearing the balance on your old credit cards. Be careful and consider all your alternatives while dealing with debt. You can calculate how much you would save with a balance transfer using MyRatePlan's balance transfer calculator.
0% Balance Transfer Credit Cards
Lots of credit card companies will offer low or 0% balance transfer credit card rates to encourage new customers to choose their service. When you pick a 0% balance transfer credit card, you should be careful to consider the following points:
0% APR grace period: How long is the grace period? A standard grace period lasts from 6 months to 18 months.
Introductory APR: There are lots of companies that will offer 0% balance transfer credit cards, so don’t pay more than you have to. Afterall, the point here is to lower your debt as much as possible.
The real APR: How much will the APR be after the introductory period? You don’t want to sign up for a card that will end up costing you more than your current card costs you now.
Transfer fees: Lots of banks will charge you a transfer fee when you sign up. Usually this is a percentage of your balance. Most fees are capped at about 3%. However, 0% balance transfer credit cards should not charge you this fee.