There is no fixed interest rate for credit card balance transfers. Balance transfer interest rates depend on a variety of factors including your personal credit score, whether you are a new customer or have a history with the lending company, the terms of the credit card offer being made, among others.
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While it might be an attractive option to transfer all your balances from high interest-high fee credit cards to a low or zero percent introductory rate balance transfer credit card, make sure you read all the terms and conditions. You might find that an attractive credit card package is hiding fine print that could cost you more than anticipated.
The Right Balance Transfer
Before making the decision to transfer your balance, weigh all the pros and cons. A credit card balance transfer is a viable option only if it eases financial stress by reducing credit card debt at a faster clip, which will help you save money over a period of time.
Balance transfer cards are a tremendous financial instrument to consolidate credit card debt. If you own too many credit cards with balances, you might want to utilize a couple of credit card offers to bring all your balances under control and avoid costly mistakes such as missed payments etc. But take this step only if you are able to pay off the total balance within the stipulated period.
If you are eligible for a new credit card that offers zero or low interest rate as an introductory offer, you might have found an optimum means of reducing your credit card balance.
Many Americans appear to be on that path of debt reduction. According to CNN Money, there was an 11% reduction in credit card debt in 2011. With the weak economy keeping consumer spending in check and banks restricting credit, more people were able to reduce their credit card balances. So choose carefully and you will be able to gain financial freedom in a relatively short time!
The Pitfalls of Balance Transfers
Even as you gear up to apply for balance transfer credit cards, it is imperative that you remember the following points:
- The low or zero interest rates apply for a minimum of six months, under the CARD Act of 2009. Additionally, under the CARD Act, all terms of balance transfer, associated credit card fees and penalties have to be explained clearly.
- If you miss a payment, the credit card company is likely to charge a default interest rate as a penalty, which is the highest interest rate noted in your credit card agreement.
- You might be required to pay off the total transferred balance within a specific amount of time, usually the duration of the teaser interest rate. If you are unable to do so, then a higher interest rate might apply towards the entire amount.
- The credit card company charges you a fee to facilitate the balance transfer, usually at about 3% of your balance amount. Make careful calculations to make sure that the entire process is worth the effort and time.
Also, remember that most teaser interest rates are applicable to transferred balances only. So any new purchases that you are likely to make with your new credit card will be charged at a higher rate.
Your Steps: Reducing Credit Card Debt
Once you are in agreement with all the terms and conditions of the credit card offer and have signed up for your low interest or zero interest balance transfer credit card, make sure that you are taking the following steps in your debt reduction process.
Avoid making any new purchases on your balance transfer credit card.
Make sure that you pay your monthly bill on time. You might want to set up monthly direct payments to avoid missing the deadline by mistake.
Carefully calculate the amount that you need to pay monthly to have a zero balance at the end of the introductory rate period.
Finding the Right Low Interest Rate Balance Transfer Card
Becoming debt-free is incredibly liberating. Not only do you not have to worry about compounding interests and fees, but you are also on your way to rebuilding your credit scores. This in turn will allow you to get cheaper loans, and credit cards with great rewards, low fees, as well as interest rates in the future.
Whether you scour email inbox or your physical mailbox, you will see an increasing number of credit card offers with low interest rates and other attractive options.
As you choose from the many options, make sure you read the details of the agreement before signing on the dotted line.
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