Many who carry credit card debt are faced with high annual percentage rates (APRs) on their cards, a rate that can easily reach 20% or more. When an offer of a new credit card with a 0% APR appears, it is certainly very tempting to jump on the opportunity. But is a credit card offering a 0% APR too good to be true? Sometimes it is.
In this post, we give an overview of what a balance transfer offer is, along with the key factors to look out for so you can determine whether or not the offer is a good deal for you – or if it is too good to be true.
What is a credit card balance transfer?
A balance transfer is the transfer of high-interest credit card debt from one or more credit cards to a new credit card with a 0% APR. The 0% APR will last for an introductory period only, which usually ranges from a few months to twenty months, depending on the terms of the offer.
Balance transfers can help you get out of debt quickly because of the 0% interest rate. All payments you make on your balance during the introductory period go toward the principal balance instead of interest, so you can pay off your debt faster than if you were still paying the high-interest credit card monthly.
Balance transfer caveats
Sound like an easy and cheap way to get out of debt faster? Not so fast! There are a few things to look out for when it comes to balance transfer offers that will help you determine whether the offer really will save you money. Keep in mind the following as you analyze your balance transfer offer:
How long is the introductory APR period?
A 0% APR can, in some cases, help you get out of debt faster, but generally only if you have enough time to take advantage of that interest-free period. When the introductory APR period ends, the APR on the card with increase. It is important to know how long this no-interest period will last so you can figure out if you will be able to pay off a significant chunk of your balance before the new interest rate kicks in. If not, the transfer might not be worth it.
What is the APR after the introductory period?
When the introductory period ends, the interest rate will likely increase. If you have not paid your balance in full by this point, it is important to know what rate you will be paying going forward. If this is a higher rate than your current credit card, and you do not think you will be able to pay the balance in full during the introductory period, consider whether the offer is right for you.
What are the fees?
Most balance transfer offers are not free. In exchange for the balance transfer, most charge an up-front fee, which is usually 3%-5% of the total balance you plan to transfer. The more you transfer, the more you will pay, so consider this amount in your total debt and whether it will be too much to handle.
What does the fine print say?
Do not forget to look at the fine print of the balance transfer offer. Common clauses in these offers include:
- The 0% APR might only apply to the transferred balance, not to any new charges you make with the new card. Those purchases will likely have the higher, post-introductory, APR, so beware of adding more debt at a high-interest rate.
- Often, if you miss just one payment, the promotional introductory rate will be canceled and you will pay a high APR. Are you confident you will not miss any payments?
Is another option better for you?
After reviewing these key factors (and the particular details of your balance transfer offer), you might determine that the offer is, in fact, too good to be true. If so, there are other options out there that might be better for you, such as a debt consolidation loan. While the interest rate might be higher than the 0% APR you would receive on a balance transfer offer, a monthly payment with a fixed interest rate over the course of the loan might give you a better opportunity to pay back your debt. Reach out to a debt relief company today to review your options and decide if a debt consolidation loan is right for you.
