Every now and then I get these checks and offers in the mail for 0% or 2.99% balance transfers for my credit cards. I do have a balance on one of my other cards, which has a 12.99% interest rate, so 0% sounds good, but is there a catch? What do I need to look out for before doing this?
Thanks,
Working on Reducing My Credit Card Debt
Dear Working,
Those balance transfer offers are seductive, aren't they? Recently credit card companies and banks have started increasing their 0% interest rate offers again, so your question is timely. It's good that you're proceeding with caution before accepting a transfer offer, because there are a few things to look out for to see whether it's worth it.
What to Look for in a Balance Transfer Offer
1. Interest Rates: Obviously, the lower the interest rate the better. A 0% teaser rate is usually offered to people with good credit scores, but besides the initial rate, you'll also want to check what the rate will rise to after the promotional period: after 12 months or whenever the offer expires, will the rate jump to 11.9% or 20.99%? You'll need to see if you can pay off the balance before the promotional period ends and the rate jumps to that higher APR.
2. Promotional Period: How long will the teaser rate last for? If it's only 6 months, you have a short period of time to quickly pay off that debt.
3. Balance Transfer Fees: Many offers charge 3% to 5% of the transfer balance upfront, so you'll have to factor this extra cost into your debt calculation. A $10,000 balance transfer with a 5% fee is $500.
4. Annual Fee: If the other card charges an annual fee, you'll have to take that into consideration as well.
Read the fine print: Remember also that if you are late on a single payment, you could lose the promotional rate and end up being charged the full higher rate. You'll want to read the fine print on any offer to make sure you know when exactly the rates will change and what fees you can expect.
Benefits that may make the offer stronger: Back when credit flowed more easily, you could see more offers with no balance transfer fees, ones that would increase your current credit line along with the transfer, or were 0% for life (Discover offered those before). Those kinds of offers, if you get one now, may make a transfer more worth it, depending on your situation and how wisely you handle debt going forward.
Calculate If It's Worth It
You can do these calculations yourself by comparing: how much you'd pay with your current interest rate over the number of months in the promotional period versus the offer's teaser rate for that time period plus any fees?assuming you would pay off the balance entirely, which should be your goal.
One final word of caution: Some people make a big mistake using these offers by transferring the balance, then continuing to use the old card or just racking up more debt. Definitely don't use these offers if you think there's a chance you'll fall into that trap.
Good luck reducing your debt!
Love,
Lifehacker
You can follow or contact Melanie Pinola, the author of this post, on Twitter or Google+.
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