What Is A 0% Balance Transfer Credit Card?
Let’s Learn About: 0% APR Balance Transfer Credit Cards
A balance transfer lets you move a balance from one credit card to another
A 0% Intro APR Balance Transfer Credit Card lets you pay no interest during the introductory period
Transferring a balance from a high-interest credit card to a 0% Intro APR card can help you save money and pay off debt faster
You may have heard of a balance transfer, but what exactly is it? A balance transfer is when you move an unpaid balance from one open credit account to another. Typically, this is done to save on interest for that balance by transferring it to a credit account with a lower interest rate.
How do you transfer a balance to a 0% intro APR credit card?
A 0% APR balance transfer offer means that the 0% balance transfer card issuer pays off the outstanding balance on your old account, and then adds this same balance to your new balance transfer card, so you will now owe the balance to your new credit card issuer. This means you could save money on interest when you transfer high interest debt.
The introductory rate will typically only last for a few months, and then the balance will accrue interest at the higher standard APR. Many credit cards that promote other rewards also offer 0% intro APR balance transfers.
Before you take action, consider these guidelines to help inform your usage of a 0% intro APR balance transfer:
1. Why apply for a 0% intro APR balance transfer credit card?
A 0% intro APR balance transfer can be an effective way of consolidating or saving money on interest. These 0% intro APR balance transfers can help you to save on interest payments you are making on your existing credit card or other high-interest loans.
For example, consider you owe $3,000 on a card with an APR of 15%. If you pay $235 each month, you will still have paid $247 of interest over the 14 months it took you to pay off the balance, assuming you make no additional purchases.
But, let’s say that you accepted a 0% intro APR balance transfer offer of 14 months with a 3% balance transfer fee. You would pay off your old balance of $3,000 and would incur a new balance of $3,000 plus $90 in balance transfer fees on your new 0% intro APR balance transfer credit card. Because of the 0% intro APR balance transfer offer, you could pay off your new balance in 14 months and save over $150 in interest, assuming that you make no additional purchases and make monthly payments of $221.
2. 0% Interest on a balance transfer credit card is temporary
The introductory 0% intro APR balance transfer rate is temporary. The duration of the introductory 0% APR balance transfer offer varies based on individual offers. After this introductory period, the remaining transferred balance is subject to the card’s standard interest rate. You should pay attention to the duration of the introductory offer because, once it is over, there will be an increase in your interest rate.
It is always important to familiarize yourself with the terms and conditions for any credit card. For example, in some cases, new purchases on cards with an active 0% intro APR balance transfer offer will incur interest at the standard purchase APR, unless the 0% intro APR offer applies to new purchases as well. The amount transferred through such 0% intro APR balance transfer offers is often subject to a one-time balance transfer fee. This fee is added to the new balance.
3. Three ways to use a balance transfer
Consider these three ways you can use a balance transfer.
- Consolidate Multiple Credit Card Debts. It can be difficult to manage debt across several credit card accounts. With each account, you’ll have a separate monthly statement, and a separate due date. You may also have multiple online accounts or mobile apps to track. When you have multiple payments to make each month, it’s simply more to keep track of, which can mean an increased likelihood of accidentally missing a payment. By transferring your balances to a single new account, you can save time and energy by making just one monthly payment.
- Reduce Your Monthly Payments. Another great way to use a balance transfer is when you’re looking to save money on interest. When you transfer your credit card balances to a new account with a 0% introductory APR for balance transfers, you will not have to pay interest on the transferred balance during that promotional period. Keep in mind that many balance transfers include a fee equal to a certain percentage of the balance transferred, like 3%, but you may still save money on interest under the offer. It can be helpful to determine your potential savings by using an online balance transfer calculator.
- Set a Goal for Paying off Your Credit Card Balances. One of the most effective ways to utilize a credit card with a 0% introductory APR for balance transfers is to use its limited timeframe as a deadline for paying off your balances. During the promotional period there will be no interest charges on the balance transfer, so all of your monthly payments will go toward paying down your principal as long as you don’t make new purchases and you don’t have any other balances on the account.
One strategy is to divide your entire balance by the number of months of promotional financing that your card offers. You can then pay off a set amount each month so that you have no remaining balance by the end of the introductory financing period. If the 0% intro APR balance transfer lasts for 12 months, then divide the transfer amount by 12. Again, this assumes that the balance transfer is the only balance on the account.
4. Before applying for a balance transfer credit card, set a budget
If you are struggling with debt, it is important to remember that you should try to continue making all of your payments on time to maintain your credit score, as a higher credit score may increase your chances of qualifying for introductory credit card offers like a 0% intro APR balance transfer.
For those looking into taking advantage of a 0% intro APR balance transfer, consider making a comprehensive plan for eliminating credit card debt that focuses on maximizing income, minimizing expenses, and paying off the entire balance before the introductory rate expires.
5. 0% APR doesn’t mean 0 balance transfer fees
Balance transfer credit cards usually charge a fee that is a fixed percentage of the amount you transfer. Before transferring a balance, make sure that the balance transfer fee won’t cost more than you save on interest.
To determine whether the transfer fee is more or less than you’ll save in interest, it’s important to check the terms of your balance transfer offer and calculate how much interest you’ll pay if you don’t transfer your balance, and how much you’ll save by transferring the balance.