Now that the end of the year is upon us, many Americans are looking for a way to better their lives and improve their finances in the New Year. It’s a great goal, and we are all about it. One of the most common methods of financial improvement for many is the concept of paying off or down credit card debt, and one of the easiest and most affordable ways to do so is by transferring balances from a card accruing interest on those outstanding balances to a new card that allows you to secure no interest for a year or so. Without paying interest on balances, it’s easier to pay them off faster and for far less.
That’s where balance transfers are beneficial. According to creditcards.com, the average credit card allows consumers to transfer balances with no interest for 12 months, giving them an entire year to pay off those balances without adding additional fees or funds to the mix. Additionally, the same site does a comprehensive review of the top credit cards of the year every year to see which ones are best for balance transfers, which are worst and which are middle of the road. If you are one of the millions of Americans with credit card debt looking to transfer a balance in order to work on paying it down or off, you might want to know what the key findings were in this year’s balance transfer survey. It could help you determine which card is best for your transfer needs.
- Balance Transfers are Normal – 88% of the top 100 credit cards allow balance transfers. Half of that number allows consumers to transfer balances at a lower rate or with a rate cut to help you pay off your debt that much faster
- 0% APR is King – Out of the 100 cards used in this survey by creditcards.com, 40 offer 0% APR on balance transfers for at least a portion of time. Additionally, most of these cards also lower the balance transfer rate as a way of attracting customers to their card as opposed to a card with 0% APR and a higher transfer fee
- Fees are the Norm – It does not matter which card you choose when transferring balances, you will pay a fee. The most common number is 3% of the balance you transfer, though some cards do offer a slightly lower rate to attract you as a customer
- Transfer Time Limits – Credit card companies want you to come to them for business, but they also don’t want to offer you amazing deals for too long. They will usually cap the limit you have to make a transfer by giving you a certain number of days after opening your account to do so before you lose the opportunity to transfer your rates with the 0% APR offer intact
- Annual Fee-Free Cards do not do 0% APR – The catch here is that if you want to transfer a balance to a card with a lower rate or one that has no interest for a year, you can. However, you’re going to have to do it using a card with an annual fee. If you do not want to apply for a card with an annual fee, you’re going to have to pay interest on your balance transfers. Pick your battle on this one
- Long-term Interest Rates – One more consideration is that you have to know what type of interest rate you are getting yourself into once that introductory rate ends. Most cards offer competitive rates, but your overall credit score and creditworthiness also plays a part in this one. If your credit is good but not great, you’re not going to get the most competitive rates from card issuers
The Federal Reserve makes it a point to raise rates whenever they see fit. It’s up to them to change rates each year, and you might find that if you don’t apply for good card rates right now, you will not find that the post-introductory interest rates on your cards of choice are all that impressive. Depending on what the Fed decides to do with interest rates this year, card companies will react differently and change their offers as they see fit. There is no way to guarantee that rates will be raised or if they will stay the same or drop, but there is a chance that it might happen and locking in a low rate is only going to be available right now.
Take Advantage of 0% APR Balance Transfers
The most advantageous finding in this study is the fact that it is always a good idea to use a 0% APR balance transfer. Even if you cannot pay off the balance you transfer within the allotted time frame, you still get to pay it down faster and without paying nearly as much. There are so many advantages to this offer that it makes the most sense to go ahead and take advantage of it right now.
Let’s say do a little simple math to see how a balance transfer with 0% financing for one year might work for you in the long run. Using the example that you have $12,500 in credit card debt, you have 12 months to pay it off without any interest charges. If you transfer the balance you owe to a card with no interest for one year on all balance transfers and you pay a 3% transfer fee, you can pay off that card in full in one year for a total of $12,875.04 because of the transfer fee of 3%.
If you stay with a card that has a typical interest rate of 16%, however, you’re going to pay a minimum monthly payment of $291.67. That includes your interest charges and 1% of your balance. It might seem as if you are paying a lot, but you are not. In fact, you are paying $291 per month toward your balance with 16% interest, but only $125 of that is applied to your principal balance. The rest is all interest. That’s more than $166 per month in interest. If you pay the minimum amount due, you will have your card paid off in approximately 30 years, and the grand total you will pay it off for will be $28,625. If you pay more than the minimum amount, let’s say around $1072 per month – which is what it would take for you to pay off the card in a year with no interest, you’d still pay it off in 13 months. That’s not bad, but you’d pay $1,177.48 in interest, making the total payment on your card $13,677.
You’ll save $802 in one year by switching to a card with no interest and transferring your balance. This is why it makes sense to take advantage of these offers when they are given to you, because the savings are always worth it.
A few things to note; 0% APR for one year on balance transfers is great, but you do need to show some concern for the fact that you do have a post-introductory interest rate to consider. Unless you are certain of the fact that you will no longer carry a balance on the card once it is paid off, this is a big concern.
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