The term “low balance credit cards” is sometimes used by customers to refer to low interest balance transfer cards. These so-called low balance credit cards are designed to help consolidate credit card debt and save money on interest charges by transferring different balances from higher interest credit cards onto one low interest credit card.
Use the credit card finder to learn more about balance transfer credit cards and pick one that will save you the maximum amount of money.
As the term indicates, low interest balance transfer cards feature a very low introductory annual percentage rate (APR) on balance transfers. In some cases, the credit card company might even offer an introductory zero percent APR. However, these rates are applicable for a specified grace period after which; they may rise substantially.
What questions should you ask before applying for a low balance credit card?
According to the Safe Credit Cards Project at the Pew Charitable Trust, the purpose of getting a balance transfer card is to lower your monthly payments but it is very important to look beyond the attractive teaser rates and calculate the real cost of getting a low interest balance transfer credit card.
For effective use of these cards, it is imperative that you check the fine print and ask some questions before submitting an application. Some important questions are:
- Does the card come with an annual fee?
- Are there any fees associated with balance transfers?
- How long does the introductory APR last?
- What is the APR after the teaser rate expires?
- What does the introductory APR cover — balance transfers or new charges to the credit card or both?
- What are the late fees and over-the-limit fees?
Getting answers to these questions will help you make an educated decision.
Does getting a low interest balance transfer credit card affect your credit score?
A balance transfer credit card is an ideal option if you are planning to consolidate and eliminate your debt in the shortest time possible. With balance transfer cards, a larger share of your payment is credited toward the principal amount allowing the debt to be paid off quickly.
Nevertheless, it is important to know that transferring your balances to a new lower interest credit card will lower your FICO score, at least on a temporary basis. Depending on the other factors such as past applications, payment history etcetera, any enquiry about your credit record may result in a deduction of five points from your score.
Why are FICO scores important for your low interest credit cards?
According to myFICO, most rely on FICO scores to establish your credit worthiness. Every consumer has three FICO scores, one given by each of the three credit bureaus: Experian, TransUnion, and Equifax.
Your score is computed from your financial information that is kept on file at the credit bureaus. This includes your payment history, your debt-to-income ratio, the number of accounts you have, among others. Your FICO scores determine the amount of credit you are eligible for as well as the interest rates you will be offered.
Should you apply for a low interest balance transfer card?
Low interest balance transfer credit cards are very effective tools if they are used with financial discipline. It is important to remember that balance transfer cards are meant for reducing debt that has already been incurred and not for extending credit to make new purchases.
If you use the balance transfer credit card as a regular credit card, it becomes an expensive and futile exercise in debt reduction since credit card companies will apply your payments towards new purchases, followed by balance transfer fees, and then your transferred balance.
If you are able to meet all the payment obligations at the introductory APR within the grace period set up by the credit card company, low interest balance transfer credit cards are a boon. They can help you get out of credit card debt and repair your credit scores.
Additionally, credit card companies also extend perks such as airline miles, points that can be redeemed at various vendors like restaurants, gas credits, etc. These extra rewards should also factor into your decision. However, it is necessary to remember that the main reason to get a balance transfer card is to reduce your debt and fix your credit score.
How can you get a low interest balance transfer credit card?
Credit card companies offer multiple options to attract customers wanting to transfer credit card balances. Low interest rates, extended grace periods, and attractive reward points can make choosing the right credit card a tough process.
Fortunately, you can compare rates and terms online using the credit card chaser tool chaser and start reducing your debt right away!