0 APR Balance Transfer Credit Cards- What You Need to Know
"What should I consider before making a balance transfer?"
If you have racked up high interest balances on your credit cards, a balance transfer can be a very enticing offer. When used correctly, a balance transfer can be an effective tool to help you gain control of your debt and simplify your financial life. Before you apply for a balance transfer, there are several things you should keep in mind to ensure you will be making the most of your low promo APR offer.
Know your credit score.
The higher your credit score the better your chances are at qualifying for a 0% APR promo balance transfer offer. The best zero interest promotional balance transfer terms are typically only available to applicants with a good or excellent credit score - usually 720 and above. As your credit score lowers, so may your available options. If you are in the “fair” credit range of 650-699 you may have trouble qualifying for a zero interest promo rate. 1
You can transfer other forms of debt.
A low promo balance transfer offer gives you the ability to reduce your high interest debt, whether it is a store credit card, gas card, school loan, medical bills or even an auto loan. Just remember that when you are approved for a credit card you will be given a specific credit limit and you can only transfer up to that amount, including any fees
How long will the 0 balance transfer APR last?
It’s important to keep in mind that the 0% promo balance transfer rate is a temporary offer. The duration of the 0 APR varies based on individual offers and the applicant’s credit score. Most low balance transfer promo APR offers on the market range from six months to 18 months. To take full advantage of a zero percent promo balance transfer offer, it is a good idea to develop a comprehensive strategy to reduce your debt by minimizing short-term expenses so that you can maximize your income, and pay off your debt before the low introductory rate expires.
Factor in the regular rate and penalty APR 2 .
Note the APR will apply to transferred balances once the 0% interest period is over. You should compare this rate to your current interest rate on that balance. The penalty APR is a higher interest rate that may apply if you miss a payment. Make sure you know how much it is, and factor in the likelihood of having to pay this higher interest rate at some point. If you know that you will be unable to pay off your entire balance during the promotional period, you should look for a balance transfer credit card that has no penalty APR and no annual fee. In certain cases, some credit cards even offer late payment forgiveness.
Pay attention to balance transfer fees.
A zero percent interest offer doesn’t necessarily mean free. Credit card issuers generally charge a balance transfer fee equaling 3% to 5% of the principal of the balance being transferred. It’s important to shop around to compare rates and fees between cards and always read the fine print. You may be able to a find a limited time offer for a 0% APR balance transfer with no fees.
Will the 0% APR on balance transfers apply to new purchases?
When considering a balance transfer offer, consider both the balance transfer APR and the rate on all purchases made with the new card. In some cases, new purchases on cards with an active 0% APR balance transfer rate will still incur interest at the standard purchase APR, unless the 0% APR applies to new purchases.
Maintain your other credit lines.
Transferring a balance doesn’t automatically close your old account. It generally takes about four weeks for a balance to be transferred, so continue making payments of your old account. It’s also important to be aware that immediately closing your old account could hurt your credit score because it lowers your debt-to-credit ratio.
Change Your Spending Habits.
Once you make a balance transfer, don’t run up charges on your old cards. If your main reason for transferring your balance is to free up credit on an existing card, you may be setting yourself up for more financial harm than good. The main benefit from a balance transfer is to get a reduced interest rate on an existing balance so you can pay it off as quickly as possible. It’s a good idea to cut back on all credit card spending until that balance has been paid off.
Discover card believes that consumers should be armed with the information they need to help them make informed credit decisions.
1 Source: FICO credit score requirements for credit card approval
1 Source: 8 Tips for a Successful Credit Card Balance Transfer (2011)
2 Source: Read the Fine Print on Balance Transfer Offers
2 Source: FTC on Credit Cards