Best Balance Transfer Credit Cards

What to Look for in a Balance Transfer Card Balance transfers can save money. Say a cardholder has a $5,000 balance on a credit card with a 20% applied percentage rate (APR). Carrying that balance costs about $1,000 a year, at this rate. After securing a 0% balance transfer on a new credit card and moving the $5,000 balance, the cardholder gets a year to pay it off with no interest and just a fee to transfer the balance. But details and surprises of these transfers are numerous. For example, after the transfer, the cardholder still has to make the minimum monthly payment on the card before the due date to keep that 0% rate. And pay attention to the interest rate. Does the new card have a default rate that’s higher than the interest the balance incurs on the current card? Similarly, any default under any of the cardholder agreement—such as making payments late, exceeding the credit limit, or bouncing a check—can make the interest jump to a penalty rate as high as 29.99%. The 0% rate is usually valid for 12 or 18 months. Can the transferred balance be paid off during that period? If not, what interest rate kicks in afterward? (And don’t expect a reminder from the credit card company about when the promotional rate is ending.) With accounts that involve a new credit card, the terms will require the cardholder to complete the balance transfer within a certain time (usually one to two months) to receive any promotional rate. The day after that window closes, regular interest rates begin. Also, a credit card company will generally not allow an existing customer to transfer a balance to a new account. A past-due payment with the creditor who will receive the balance, or if the cardholder has filed for bankruptcy, may also result in the decline of the transfer. Transferring a balance if there's no 0% or low-rate interest rate offer can work, but do the math first. Say a cardholder has a $3,000 balance with a 30% interest rate, which translates into $900 a year in interest. Transferring the balance to a card with a 27% APR and a 3% transfer fee means paying $810 in interest a year, plus a $90 balance transfer fee. The cardholder would break even only after a year. In this example, to come out ahead the cardholder needs a deal where the APR is less than 27%. A better plan might be to ask the existing card issuer for an interest-rate reduction to 27% or less, saving the balance-transfer fee. Beware the Grace Period People who take advantage of these offers sometimes find themselves on the hook for unexpected interest charges. The problem is that transferring a balance means carrying a monthly balance. Carrying a monthly balance by not paying off the debt each month—even one with a 0% interest rate—can mean losing the card’s grace period and paying surprise interest on new purchases. The grace period is the time between the end of the credit card billing cycle and the due date of the bill. During that period (by law, at least 21 days) the cardholder doesn't have to pay interest on new purchases. But the grace period only applies if the cardholder is carrying no balance on the card. What many consumers don’t realize is that carrying a balance from a promotional balance transfer affects the grace period. Also bear in mind that many offers stipulate that the cardholder's credit score determines the actual number of months of 0% balance transfer in the introductory period. If the terms of the grace period for purchases after a transfer are unclear, options are to pass on the offer and look for one with clearer terms; take the 0% balance transfer offer, but don't use the card for any purchases until the balance transfer is paid off, or choose a credit card that offers a 0% introductory APR for the same number of months on both balance transfers and new purchases. The only way to get the grace period back on a card and stop paying interest is to pay off the entire balance transfer, as well as all new purchases. Transferring a credit card balance should be a tool to escape debt faster and spend less money on interest without hurting one's credit rating. Personal Loan Comparison Some financial advisors feel credit card balance transfers make sense only if a cardholder can pay off all or most of the debt during the promotional rate period. After that period ends, a cardholder is likely to face another high interest rate on their balance, in which case a personal loan—with rates that tend to be lower, or fixed, or both—is probably the cheaper option. If the personal loan has to be secured, however, the cardholder may not be comfortable pledging assets as collateral. Credit card debt is unsecured, and in the event of default, it's unlikely that the card issuer will sue and come after cardholder assets. With a secured personal loan, the lender can take assets to recoup losses.

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