How To Get The Most Benefit From Your Balance Transfer

Are you struggling to pay off credit card debt? If so, additional interest charges are being added to your balance each day. But what if there were a way to take a break from interest charges so you could pay off your purchases faster? Credit cards that offer 0% APR promotional financing on balance transfers allow cardholders to do just this.

How balance transfer offers work

When you open a new credit card account that offers interest-free promotional financing, you are able to transfer existing balances from other card issuers to your new account that will not incur any interest charges for the duration of the promotional financing period. By law, interest-free promotional financing must last for at least six months1, and some offers currently extend for as long as 18 months.

Additionally, nearly all zero percent APR balance transfer offers require the payment of a balance transfer fee, which is typically three percent of the amount transferred. This fee is simply added to the new balance and is then subject to the same terms.2

Making the most of 0% interest

Balance transfer offers can help you get out of debt sooner, while paying less interest, but you will have to choose the right offer and use it properly to get the most benefit.

  • First, you need to compare the terms of different offers available. For example, the Discover card currently has one offer that features 14 months of interest-free financing on both new purchases and balance transfers, and a different offer for 18 months of 0% introductory APR financing on balance transfers and six months of financing on new purchases.
  • Next, cardholders should transfer their existing balance as soon as possible after their account is opened. Since credit card interest charges are incurred based on the cardholder’s average daily balance, the sooner the transfer is completed, the more interest costs will be saved. However, since balance transfers can take up to two weeks, it’s also important that cardholders continue to pay their bills until they receive confirmation that the transfer is complete.
  • Another thing to consider is how payments will be applied to cardholders’ accounts. The Discover card will generally apply amounts up to the minimum payment due first to the balances with the lowest APR, which will always include any promotional financing balance with a 0% APR. Payments in excess of the minimum payment due will then be applied to the balance with the highest APR.

For example:

If you had the offer for the Discover it® card with six months of promotional financing on new purchases, and 18 months on balance transfers, after six months any payments above the minimum will apply to the new purchases balance which will be incurring interest at the standard rate. Therefore, cardholders need to know that their payments will apply to their balance transfer only after new purchases have been paid off.

Balance transfer “dont’s”

Most importantly, an interest-free balance transfer offer should never be seen as a reason to postpone debt repayment. Credit card users who are fortunate enough to receive these offers should seize the opportunity to pay off as much of their debt as possible before the promotional financing period expires. When used in combination with a responsible budget that minimizes expenses and increases payments, interest-free balance transfer offers can be extremely helpful. Cardholders who fail to pay down their debt during the promotional financing period have missed a valuable opportunity. (And under no circumstances should cardholders assume that they will be able to transfer their debts to a new balance transfer offer once their existing offer expires.)

When credit card users understand how promotional financing offers work, they can take the steps necessary to get the most value from them.

1. http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title15-section1666i-2&num=0&edition=prelim

2. http://www.investopedia.com/terms/b/balance-transfer-fee.asp

Legal Disclaimer: The articles and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. 

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