Do the Math: How to Get the Best of Balance Transfer Offers

Do the Math: How to Get the Best of Balance Transfer Offers

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If you tend to carry a balance on your credit cards from month to month, you probably get a lot of balance transfer offers in your mailbox.

With tantalizingly low interest rates down to zero percent, these offers are certainly tempting. But is it a good idea to take advantage of them? And are some actually better than others?

To get you to open the envelope, most offers feature an appealing promotional annual percentage rate in huge type on the front of the envelope, sometimes as low as 0%. But once you're inside the envelope, things start to get interesting as you read the fine print.

Here are three things to compare so you can figure out what's best for you:

  1. Not everyone can qualify for 0%, and you may not know if it's an option until after you've applied. So be prepared that the zero rate offer might not be the one you actually get.
  2. Look closely at how long that low rate will last. Introductory interest rates can escalate quickly after a few months — or if you're late with a payment.
  3. Watch out for something called a balance transfer fee. It's a lump sum that's added to your balance as a cost for the transaction. This amount is based on a percentage of the total you're transferring, often 3% to 5%. So if you're transferring $20,000, the fee would be $600 at 3% or $1,000 at 5%.

That's pretty significant. In fact, it might be worth it to find a balance transfer offer that has no fee but a slightly higher annual percentage rate, often in the range of 1.9% to 2.9%. If you plan to pay off some or all of your balance during the promotional rate period, your cost may drop significantly.

Either way, you'd still be paying less per month to carry the balance of your current higher-interest card. And keep in mind that if you make purchases on your new card in addition to the balance transfer, you may not be eligible for the typical interest-free grace period you would normally get when you pay your bill in full. Be sure to read the conditions of your offer.

When you receive a balance transfer offer, crunch the numbers and see if it can save you money. Also, with a little research you may even find a card that offers you other incentives, such as reward points, travel miles, or fewer penalties for late payments.