Balance Transfer Credit Cards – What Are They And Why You Might Want To Get One

by Mike Holman

This article will explain the following:

  • Exactly what balance transfer credit cards are
  • How you can save money by getting one
  • Things to look for in a zero balance credit card.

What are balance transfer credit cards?

These credit cards allow you to transfer your existing credit card balances to the new balance transfer credit card which offers a lower interest rate for a set amount of time.  The main benefit of these cards is the lower interest rate available.  Most “balance transfer” offers are for zero percent (0%) interest rates which needless to say is a great deal.  Even if you don’t qualify for the zero percent transfer card there are other offers which still might be an interest rate lower than your own.

Typically these special interest rate offers will be in effect for 6 months to 1 year so there is a large opportunity to save some money if you are currently carrying a balance on a high interest card.

How do these credit cards save you money?

Most credit cards charge a high interest rate (that’s how they make money) – the higher the interest rate then the more interest you have to pay.  For example if you have a $10,000 balance on a card with 18% interest rate then the interest costs for 1 year will be approximately $1800 (or $150 per month).  If you can transfer that balance to a new credit card that has a zero percent interest rate for 6 months then you will save approximately $900 in interest costs.

Things to look for in a zero percent balance transfer card

Here are some of the things to look for when deciding on a zero percent balance transfer card:

Interest Rate – The interest rate has to be low since this is the main reason you are getting the card.  Zero percent is nice but really, any amount significantly lower than what you are paying now will save you money.

Normal APR – This is the interest rate you will be paying on the credit card balance once the initial low interest offer expires (usually after 6-12 months).  This may not be all that relevant since one good strategy is to keep the card until the initial low interest offer expires and then transfer to a new zero balance credit card.

Transfer Fee – Some cards will charge a fee to transfer your balance to the new card – again, zero percent fee is nice but even a few percent can still make the card worthwhile.  If you have to pay a 3% one-time transfer fee but can save 18% interest for 6 months or longer then you will save money.

Terms and Conditions – Make sure you know the rules of the zero percent offer – my best suggestion is to not use the card for any purchases or cash withdrawals once you get it.  Doing so can often void the zero percent balance feature and you will either have to pay a higher interest rate or you have to pay off the entire zero balance amount before the new purchases can be paid off.  Just don’t use the card!!!

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