Finding the best balance transfer credit cards also involves a careful consideration of spending habits and when to use balance transfers. There are instances when using a balance transfer is financially beneficial and times when it is not. In a balance transfer, the amount on one credit card is transferred to another credit card. The transfer is usually completed to avoid high interest rates or fees from the original credit card.
One place to find and research the best credit cards for balance transfers is to use the FREE credit card chaser tool at the top of this page!
Researching the fees associated with balance transfers and the terms and conditions of the new credit card is the best way to find the most money-saving credit card for balance transfers. Many consumers use credit cards as money-management tools. Credit cards can be used for emergencies, for large purchases and when cash is in short supply. Some consumers also use credit cards for balance transfers.
What is a balance transfer?
A balance transfer is using one credit card to pay off the debt from another. The debt shifts from the original card to the new card. Many consumers choose to transfer credit card debt from one card to another to try to save money. For instance, the original card may have a higher interest rate than the new card or the spending limit has been reached.
The new card usually has an attractive introductory interest rate, better rewards, or lower fees. However, many credit card companies and banks charge fees for balance transfers that could cut into any long-term saving.
What fees are charged with balance transfers?
Each credit card will differ, but most will have a credit card balance transfer fee. A 2010 report on CNNMoney.com put the average balance transfer fee at 4%. In effect, you would be charged $4 for every $100 of debt transferred to the new card. A $4,000 balance transfer from one card to another will result in a fee around $160.
Some low interest credit card companies offer low initial balance transfer fees as an incentive to new customers. Some go so far as to offer 0% fees in an effort to attract credit-worthy customers. Under the Credit Card Accountability Responsibility and Disclosure Act of 2009, credit card companies must be upfront about the terms and conditions for credit card agreements. However, always check the fine print to understand what happens to your low introductory fee if you miss a payment.
When is a balance transfer a good idea?
Transferring debt to a new credit card is a good idea if it will save you money in the long run. This can be achieved through low fees and low interest rates on the new card.
For instance, if your old card’s low interest rate is about to expire, then transferring the balance to a new card could be a money-saving move. Credit card companies must extend introductory interest rates for at least six months, but after that, the rates could go up. If your credit card’s interest rate is about to jump from 1% to 8%, then a balance transfer to a new credit card with a 2% interest rate could be a wise move as it would save $240 in interest charges a month.
Also, many credit card companies charge penalty interest rates if a customer misses a payment. A credit card penalty rate can run to 20% and beyond, compounding credit card debt. If the interest rate on your old credit card has jumped to an excessive amount, then transferring the balance to a new credit card with a reasonable rate would most likely be a sound financial move.
When is it a bad idea?
Transferring debt from one credit card to another can be a sound financial decision as long as it is not used improperly. If you are constantly using balance transfers to juggle credit card debt, then the fees will soon wipe out any savings. If you transfer a $4,000 credit card balance four times, then the total fees of $640 likely wipe out any savings from the lower interest rate. Similarly, high penalty rates will increase your debt at an alarming pace if you miss a payment.
Likewise, balance transfers are not a good idea if you will not have a big enough spending limit to transfer all of your debt to the new credit card. If you have $8,000 in debt on a high-interest credit card but can only transfer $5,000 to a low-interest card, then the chances of missing a payment on either will only double.
Lastly, transferring the balance of a credit card is usually more of a bandage than a cure-all from a financial standpoint. Curbing spending and paying off credit cards are often better ways to save money in the long run.
Where can I research credit cards and balance transfer fees?
JD Power conducts annual studies on consumers’ satisfaction with credit card companies and banks. These ratings are a first step in finding a credit card company with low interest rates and reasonable fees.
Next, after choosing a credit card company or bank with a high customer service satisfaction rating, you should research the terms and conditions of all of the credit cards offered. Understanding the fine print of the agreement will allow you to choose the best credit card rates for balance transfers. Crunch the numbers between your old interest rate versus the new interest rate and make sure the savings will be more than any fees that are charged.
Lastly, use balance transfers only as tool in your long-term financial plan to use credit cards sparingly and pay off debt.
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