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When Transferring a Balance Pays—and When It Doesn’t
Balance transfer credit card offers can feel like a dime a dozen. Zero-percent APRs, 18-month promotional periods, no-fee transfers, no interest on purchases, sign-on bonuses for transferring a balance: the incentives to transfer can be pretty compelling. But how can you know whether transferring your balance is really worth the trouble? Here’s how to know if transferring a balance to a new credit card will pay off for you. Read this before you apply for that balance transfer credit card.
- Figure out how much debt you’re really carrying. If you have debt spread over several different credit cards, it can be hard to know exactly how much you owe. Make a list of all the major credit cards, store cards and other lines of credit you hold. Then tally up the totals on all of them. If you owe more than you can easily pay off in the next month or two, consolidating the debt onto one balance transfer credit card could be the best plan.
- Calculate the interest rates you are paying on your current credit cards. Take that list—the one you just made—and write down the APR on each card, next to the total balance due. If the interest rates on your biggest balances are high, then moving those debts over to a zero-APR card could save you a bundle over the long haul.
- Take a look at your credit report. You can get a free copy of your credit report once a year from each of the three major bureaus: TransUnion, Equifax and Experian. Just go to annualcreditreport.com to request a copy. Some credit card issuers, including Discover, now print cardholders’ FICO scores on their monthly statements as well. If your credit is good or excellent, then your chance of being approved for a balance transfer credit card with a long no-interest promotional period is very good. However, if your credit is average or poor, you may not be eligible for the very best balance transfer offers. Applying for new lines of credit can further harm an already damaged credit score, so think twice before trying for a balance transfer if you find yourself in this situation.
- Look over the balance transfer offers you are considering. If any of them have a no-fee balance transfer option, put them at the top of the list. Many cards charge between 3% and 5% of each balance transferred. That can translate to a $150 fee to transfer a $3,000 balance. So a no-fee card will save you hundreds of dollars if you are transferring substantial debt. Then look at how long the promotional period is. Some are six months, some are a year and a half or more. Consider whether there are any incentives, like a sign-on bonus of extra reward points or frequent flyer miles. Pick the card with the lowest fee, the longest introductory period, and the best perks, and you’re in business.
Transferring could be the right choice for you—just be sure you consider all these points before doing it.
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