Why Do a Credit Card Balance Transfer, and How?
I first considered a balance transfer last summer. A newly-minted MBA, I was also up to my eyeballs in debt (let's face it: I still am), but was hoping to responsibly pay it down, so I did the conscientious thing: I read up on which credit cards offered what benefits and chose the one that seemed to best suit my goals. Then, I transferred my existing credit card balance, which was accruing interest at nearly 13% per year, to one which would accrue no interest for 12 months (for a fee, of course, but we'll get to that). So why do a balance transfer, and how can you find the best deal out there? Why, so glad you asked!
(See also: The Best 0% Balance Transfer Credit Cards)
People generally transfer their credit card balances from one card to another when they are unhappy with their current card company's policies or practices, or if your credit card company notifies you that your interest rate or terms are changing. Prior to the signing of the Credit Card Accountability, Responsibility and Disclosure Act in May 2009, credit card companies could change any terms of service, at any time. Now, however, a card issuer must give you 45 days' advance notice prior to increasing your rate, changing pertinent fees, or making other significant changes. Should you receive a notice like this, you have the option to cancel the card, or you may want to keep it (for credit score or emergency purposes) and transfer the majority of your balance to a new, lower-rate card.
And how do you go about finding the best card for you? The Consumer Action's 2009 Credit Card Survey website is an excellent place to start, with lists of most popular credit cards with their terms at-a-glance, 0% balance transfer credit cards, and 0% introductory offer credit cards. As I said earlier, you should be aware of your goals when choosing a new card. A 0% balance transfer credit card may not be what you're looking for if you don't plan to pay off the balance within that 0% interest period. Instead, a card with a lower interest rate on an ongoing basis may cost you the least.
You might also want to check out our Credit Card Guide, which breaks down credit cards by categories like low interest, travel rewards, etc.
Before you rush off thinking, "Balance transfers are amazing! Sign me up for a new card immediately," it's probably a good idea to read this article regarding things to be attuned to prior to transferring a credit card balance. As this article so aptly points out, the devil is in the details. Before you commit to a balance transfer, make sure you understand the terms of the offer (the 0% rate may only apply if you also make a certain number of purchases, for example, all of which will accrue interest at the standard APR) and what the transfer fee is. Also be aware that it can be difficult to qualify for an attractive offer if you don't already have great credit. The article correctly notes that those with the largest balances generally stand to gain the most by transferring those balances to lower interest rate cards.
So now that you are equipped with the basic knowledge of how to do a balance transfer, consider whether one might benefit you. A little homework and the right card could save you quite a bit in interest payments!
Have you had a positive/negative experience with credit card balance transfers? Share your thoughts on the matter!