How to Pick a Balance Transfer Card
You now understand how a balance transfer works and the ways you can maximize the benefits without falling victim to a trap. Now it’s time for us to talk about how to actually go about picking your balance transfer credit card! It starts with finding a good deal.
Finding a good deal
There are plenty of balance transfer offers out there, but you need to do a little bit of digging to determine which one is best for you. Here are some of the top factors to consider:
- Promotional APR: Of course, 0% APR is the goal. But if you find another card you want with a higher interest rate, or you can only get approved for one with a higher interest rate, you should aim for under 5% APR.
- Promotional period: How long do you get the promotional APR? The longer the better of course. A minimum term for which you should look is a year, but there are options out there for longer!
- Balance transfer fee: Sometimes a bank will charge a fee to transfer over the balance. But unless the balance you’re transferring is small, that fee will often more than pay for itself in the interest you’ll save. 3% is a fairly standard fee.
- Post-promotional period APR: What is the APR on your balance going to be after the promotional period ends? Hopefully, you’ll have paid off the debt, but just in case you didn’t, it’s good to know what you’ll face. Usually, you’ll see a range and your APR will be “based on creditworthiness”. You should probably just assume you’ll be tangling with the high end of the range.
- No annual fee: There are plenty of no-annual-fee credit card cards that offer a balance transfer. You don’t need to pick a credit card with an annual fee in order to get a good deal on a balance transfer.
[Writer’s note: Here, I’d recommend creating a grid of best balance transfers and linking to it here.]
What to ignore
Rewards: First of all, a balance transfer doesn’t earn rewards. So if you move $5,000 over to a 2% cash back card, that’s not getting you $100 off the bat. You also shouldn’t pick a balance transfer card based on rewards because remember, you don’t want to be spending on this card! You ultimately aren’t earning reward points or miles or cash back with this card. You’re just using it to crush your debt.
New purchase APR: Speaking of not using that card for new purchases, you also shouldn’t care if the APR on new purchases is also 0% for a period of time (or some other low promotional rate). Remember: You aren’t going to make new purchases on this card!
Checking the fine print
Hopefully, you remember all the potential tricks and traps and don’t stumble along your way to debt freedom. But it’s still good to know the consequences of any slip-ups. Before you get a balance transfer card, you should read through the fine print (or at least CTRL-F for keywords). You want to know the penalty APR — which is what you’d pay if you missed a payment and lost your promotional rate. Check to see how many months you have to complete the balance transfer before you forfeit the promotional rate. It’s often between two and four months.
Not sure where to find all this information? It’s usually under terms & conditions or sometimes labeled as pricing & information. Just CTRL-F for those terms on a webpage and you’ll find where to click. This is also where you’d find the regular APR, or what your rate would be after the promotional period if you have a balance remaining and if there’s an annual fee.
Is this right for me?
A balance transfer is truly a nearly magical weapon in the debt repayment battle — if, and only if, you’re able to get debt free in the promotional period (or with rolling over) and not stepping on a bank’s landmine to blow you into penalty APR.
The only way you know if it’s the right pick for you is by being honest with yourself. If you’ve had a bad habit of missing credit card payments (or any debt payments) here and there, a balance transfer is too big a risk. If you struggle with making impulse purchases and a credit card has proved too strong a temptation in the past, then this isn’t a good option. (Don’t worry, we’ll discuss others).
What about my credit score?
Balance transfers, at least the top-notch options, are generally only available for people with a strong credit score. We’re talking 700+. If you’re currently not in the 700+ Club, don’t worry. You can first focus on that which you can control and utilize the debt avalanche or debt snowball method for now.
Now, you may be wondering how a balance transfer would impact your credit score. Never fear, Charlie is here to talk you through it!