Should I Transfer My Credit Card Balance to a Card With a Low Interest Rate?
Since many credit card companies offer zero interest rates for up to 18 months, you may be thinking of a balance transfer – a type of credit card transaction in which debt is transferred from one account to another. If you have a high interest credit card balance that can exceed 20%, then not having to pay interest until 2022 can help crush credit card debt once and for all.
But balance transfer offers are not a panacea for your debt. You need to be sure that you can pay off your balance before the interest-free payment expires, otherwise you risk worsening your debt situation, possibly with a higher interest rate than your previous card. Before signing up for a card offer that will attract you interest-free for several months, ask yourself the following questions:
What are your upcoming expenses?
Are you going to apply for a mortgage or other large loan? Opening a new line of credit can lower your credit score, although having more loans available can cause it to go up over a couple of billing cycles. Before opening a new card for a balance transfer proposal, carefully review your financial needs for the promotion period and beyond.
How long is the promotional period?
Look for an introductory period of 12 to 18 months for a new card application offering transfers with zero percent of the balance. If you’re lucky, you might find a 21 month offer with no interest. It’s worth doing a little math to see how much of your balance you can actually pay off before this window closes.
What is the interest rate after the promotion period?
Some cards will show the range of the variable interest rate (it will fluctuate when the Federal Reserve raises or lowers the federal funds rate). For example, the HSBC Gold Mastercard specifies the annual interest rate for its recurring variable balance sheet roll-over in a range of 13.99% to 23.99%. Currently, the national average is 16.04%. Some cards will show benchmarks based on your loan.
If you are confident that you can pay off your balance before the end of the promotion period, you may not be too concerned about the interest rate. But if this is a card that you want to keep in your financial rotation after the promotion, be aware of the lower interest rate.
You may also find that the card offering balance transfer has different interest rates specifically for balance transfers after the promotion period, so check that again.
What is the commission for the balance transfer?
There is usually a 3-5% fee on the amount you transfer, with some cards requiring a minimum transfer fee of $ 5 or $ 10. Some cards charge a transfer fee of a certain percentage for the first few months of the transfer, before charging another percentage for the remainder. For example, Visa Wells Fargo Cash Wise is charged a balance transfer fee of 3% ($ 5 minimum) for the first 120 days, and then 5% ($ 5 minimum) thereafter.
Is there an annual fee?
Annual fees can range from $ 25 to $ 550 per year . If you are not taking advantage of the benefits that your card offers in exchange for this commission, it is wise for you to avoid a card that has an annual fee. Don’t spend more on paying off your debt.
This is not the last offer you will receive
Aside from what ends up in your inbox, you can check out card offers for balance transfers through credit rating sites like Credit Karma and Credit Sesame and through review portals like Bankrate . If you receive an offer for one, you are certainly eligible for another, so don’t assume that the last offer you received in the mail is your only option.
This story was originally published in 2019 and updated on November 19, 2020.