Credit card balance transfers come with certain terms that you need to be aware of. Whether you’re familiar with the term, “Nothing in life is free,” from the dog training world or not, you can certainly apply this to credit card issuers. It might seem as if they are being benevolent by offering 0 percent annual percentage rate deals if you transfer your balance from another card or cards to their card, but they are not offering this deal for charitable reasons. They want to make some money off you. If you play your cards right, however, you win on this deal, but if you play this hand wrong, the credit card issuer wins. You might be asking yourself at this point, “What are balance transfers?” Here’s what you need to know:
You typically need to pay a fee to get the 0 percent APR balance transfer deal. Fees are usually 3 percent of the balance, but they could be as much as 5 percent. You might be able to get a card that offers 0 percent APR with no fees, but that’s rare. For example, at the time of this writing, only one card offered that deal, the Chase Slate card. If you are transferring a large sum, such as $10,000, and the fee is 5 percent, you’ll pay $500 to transfer the money. You would need to save more than $500 on interest payments, or you lose on the deal. If the fee is 3 percent, you would pay $300. Most people save if they pay the balance off during the introductory period, even with a 3 or 5 percent fee.
Many credit card issuers offer 0 percent APR deals for 12, 15 or 18 months. The shortest introductory periods last 6 to 9 months. After this introductory period ends, you will be charged interest on any balance you have left on the card. It’s important to know what the interest rate will be when the introductory period ends if you think you won’t pay the card off during the introductory period. However, you might not know the exact figure; the credit card issuer might post the interest rate as a range, which typically depends on your credit score.
You can use your credit card balance transfer card for new charges during the introductory period as long as you have available credit. If you know that you can use the card and still pay off the balance during the introductory period, this might work well for you. But, be careful that you don’t charge more than you can afford. When the introductory period ends, you could wind up in a worse position than you were in before the balance transfer, depending on what your new APR is. You also need to read the terms of your balance transfer card. Sometimes the low introductory APR offer applies only to the balance transfer and not for new purchases.
When you talk to a credit card issuer, you can always try to negotiate terms, such as extending the introductory period or lowering the fee. There is a chance to get terms that are more favorable, but the credit card issuer is under no obligation to change the terms it offers. Your best bet is to shop around. Compare the balance transfer cards on the market, and choose the one that offers the terms that are most important to you.
If you miss a payment on a credit card balance transfer card, your 0 percent APR could end immediately. Your card issuer might replace it with a penalty interest rate that could be higher than your old card’s rate was. Penalty rates are often extremely high, such as 28 percent APR. You need to read the terms of the card offer to know what happens if you miss a payment or are late.
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