Balance transfer credit cards with low introductory interest rates can help you whittle down your credit card debt while making lower monthly payments. You move the amount you owe on an existing credit card to the new balance card, which offers a lower interest rate for a set period of time.
There are some conditions with balance transfers that you should understand before you apply. Here are the questions to ask:
- How much will it cost me to transfer my balance?
The bank issuing the balance transfer card will charge you a fee--usually three to four percent of the amount you’re moving to that card. Some banks will offer a lower percent for any amount that you transfer to the card within the first 30 days, and then increase the percentage rate for any balance you transfer after that time.
You’ll have to do some math before you decide if a balance transfer card is a good deal for you. If the transfer fee would cost more than you could save in interest, you may as well stick with your current card.
- What’s the introductory interest rate? How long will it last?
Many balance transfer cards offer zero percent interest. But that introductory rate is good only for a limited period. The offers currently available on creditcardxpo.com offer this introductory rate for anywhere from 9 to 15 months.
- What rate will I pay on new purchases?
The low interest rate usually applies only to the amount you transfer from one card to another. Before you apply, compare interest rates on the various cards.
- How will you apply payments to my outstanding balances?
Planning to use your balance transfer card to reduce your credit card debt? Limit the new purchases you make with that card. That’s because of the way that banks have to apply your payments.
The banks will usually put the amount equal to your minimum payment towards the transferred balance. After that, they are required by federal law to apply any payment above that minimum towards the balances with the highest interest rates. With a balance transfer card, that almost always means the new purchases.
- What happens after the introductory period expires?
The credit card issuer generally applies the card’s regular interest rate to any outstanding balances. If you don’t think you can pay off the balance within that time period, be sure to take this into consideration.
- Is there an annual fee for this card?
Some balance transfer cards are free and some charge you an annual fee right away. Others give you a break the first year and then charge you an annual fee after that. Those fees can range from $29 a year and up.
- What other benefits does this card offer?
Like other types of credit cards, balance cards offer a variety of additional perks that could be of interest to you--cash back, airline miles, road breakdown coverage, etc.
- Will I qualify for this card?
Balance transfer cards are usually issued to people who have good to excellent credit. If your credit record is spotty, it might be hard for you to get approved.