If you're up to your eyeballs in credit-card debt with no way to regain your footing due to astronomical interest rates, a balance transfer may be a way to make your finances more manageable.
A balance transfer is a way to move your existing balance onto another credit card that has a lower (usually 0-4%) introductory interest rate. This initial rate is commonly referred to as the teaser rate, and it usually only lasts up to 18 months before a much higher normal rate kicks in. Many credit card companies recognize that you might need a reprieve in order to completely pay off your credit card balance, and they offer low-interest balance transfers to attract new customers. If a year of interest-free credit balance sounds like exactly what you need, then take these steps to ensure wise decision-making.
First, you should consciously plan out how to pay back your balance. It might not be worth transferring your balance to a low-interest credit card if you end up accruing more debt before the teaser rate ends. While waiting for your balance to transfer, remember to continue paying the minimum required balance on your old credit card. Only when you receive confirmation from both credit card companies of the completed transfer should you stop making minimum payments and perhaps look into closing the old account.
Let's be real: credit card companies aren't simply trying to do you a favor. They offer this gamble in the hopes that you might trip up and incur additional fees, or at the very least, stay on as a customer after the teaser rate expires and your interest gets hiked up. As with any financial decision, do an adequate amount of research before signing up for anything. Here's a list of fine print to watch out for:
- Make sure that 0% is actually 0%. Some companies promote free interest but actually only apply it to certain customers, while others instead receive 3% or higher.
- Even 0% might not be exactly 0%. A credit card can offer 6 months of zero interest but require a 2% fee for every balance transfer.
- Always pay on time. Most balance transfer credit cards stipulate either harsh penalty fees or the termination of the low teaser interest rate (or both) for late payments.
- Know when the teaser rate ends. Plan for exactly when the normal interest rate begins, and ask for specifics from promotions that last "up to" however many months.
- Use your new card sparingly if necessary. The 0% interest on your transferred balance might not apply to new purchases you make on this card, so don't let your latest spending get buried in newly collected interest.
- Apply the same standards you would to other credit cards. If you plan to continue using your new credit card — and don't plan on companies allowing you to hop to and from various balance transfer cards as soon as your low rates expire — look for one with low or no standard charges such as annual fees.
For an index of top balance transfer cards, check out our credit card section.