Should I Do a Balance Transfer?


Balance transfer Q&A: “Should I do a balance transfer?”

If you’re currently paying credit card finance charges each month, a balance transfer is probably a good idea.

While it’s not uncommon to pay interest on your credit card balance(s), it’s not a healthy habit.

Millions of Americans are essentially throwing money down the drain because they either don’t know how a balance transfer works, or are afraid of them for one reason or another.

When it comes down to it, credit cards should be reserved for convenience, purchase protection, and perhaps for their associated cash back rewards.

That said, if you’ve got tons of credit card debt on a credit card with high APR, or even so-called “low APR,” it’s probably time to consider a credit card balance transfer.

Should I Transfer My Credit Card Balance?

  • When you don’t pay your credit card balance(s) off in full each month
  • You must pay finance charges to the credit card company
  • This makes it difficult to pay down the actual purchases made using the card(s)
  • In this case a balance transfer might be more cost-effective

If you move your existing credit card debt to a new credit card via a balance transfer, ideally using a 0% balance transfer credit card, you’ll realize some serious savings pretty much no matter what your situation.

And the good news is that most balance transfer offers are 0% balance transfer credit cards, so you’ll be able to enjoy zero interest (finance charges) on the transferred balance for the entire promotional period.

These days there are even credit card issuers offering 0% APR for up to 24 months on balance transfers, which should help even the most debt-riddled consumer pay off their high-balance credit cards while avoiding interest.

There’s also the Chase Slate No Fee Balance Transfer offer, which means you can transfer your credit card balance and pay nothing in fees or interest for 15 months!

Okay, this all sounds pretty good, right?  Well, as always, you should do the math to decide if it makes sense.  Yes, I said earlier that most everyone will benefit from a balance transfer, but let’s just make sure.

Do the Math Before You Decide

Credit card debt: $5,000
Current credit card APR: 20%
Current monthly finance charges: $83.33

Using simple math, you’d be paying roughly $83 a month in interest if you carried $5,000 on a credit card with 20% APR (not at all uncommon for the interest rate to be that high!).

If you were to execute a balance transfer to a 0% APR credit card, you would avoid paying that interest for up to two years, depending on the card you apply for.

That would equate to thousands of dollars in savings, less any balance transfer fee.

But you should always try to go with a no fee balance transfer offer, as you won’t pay anything to transfer your balance, so the savings are all yours!

But My Credit Card APR is Already Really Low!

  • The word “low” is highly subjective in the credit card world
  • You’ll often be told that 10% APR or similar is low
  • But that’s only relative to the 20% interest rates that are common on many credit cards
  • Bottom line is you want 0% APR if you carry a credit card balance

Even if your current credit card APR is a low, low 9.99% on a much smaller $2,500 balance, you’d be paying roughly $21 a month and about $250 annually in interest.

While you may shrug it off and say it’s not worth the time and effort to carry out a balance transfer, you’re still throwing away money. Think about the other stuff you do just to save a few bucks, like coupon cutting.

A balance transfer takes even less time to execute than pulling out the scissors and searching through the newspaper each week.

And chances are your credit card interest rate is north of 10%, if not 20%.  So it’s typically a no-brainer to go with a balance transfer if you’re carrying credit card debt.

In summary, if you’re stuck paying finance charges every month, the question of whether to transfer a balance or not is pretty easy to answer. Hopefully I’ve illustrated that.

Tip: Does a balance transfer hurt your credit score?

(photo: Pink Sherbet Photography)

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