So, you have some debt you'd like to pay off? A low- or zero-interest balance transfer card can help you free up cash flow and give you time to pay your obligations. A balance transfer card offers special terms to those who transfer big chunks of debt from other cards.
As good as that sounds, it's important to remember that these cards have no more lasting benefit than any of the other plastic in your wallet. Once you've exited a predetermined promotional period -- generally between six and 18 months -- a balance transfer card becomes just another credit card. Paying extra during the promotional period -- when interest doesn't accumulate -- can make it easier to shed expensive debt. Just be sure to read the fine print, because balance transfer cards can vary widely in what they offer.
Kinds of balance transfer cards
Generally, there are three types of balance transfer cards available to consumers.
- No-fee balance transfers: Customers with good credit may qualify to transfer large sums to a low- or even zero-interest credit card without paying a fee on the balance transfer. If you can qualify, this is the deal to get.
- Low- or no-interest balance transfers: Your second-best bet is to get the lowest possible interest rate on transferred balances. This is also the most widely available type of balance transfer card.
- Low- or no-interest purchase cards offering similar terms on balance transfers: Lastly, consider what is essentially a regular credit card whose sign-up offer includes 0% on purchases and balance transfers for a certain period of time -- generally 30 to 90 days. This option is best if you're transferring only a small amount of debt that you can pay off before the short time frame runs out, or if you are buying a high-dollar item you want a little more time to pay off.
Let your specific financial needs determine which type of card is right for you.
Cards can also vary by the type of balance transfers they allow.
- One-time transfer: Most cards are designed to support a one-transfer from one card at a specific rate for a specific period.
- Multiple transfers over a set period: There are some cards that allow for several transfers over an introductory period. When you move balances during that time frame, you'll get the rates specified in your card's terms and conditions.
Considerations when choosing a balance transfer card
Balance transfer cards are at their best when they save you money. Here are three ways the card you choose can either help or hinder your chances to cash in.
- Fees: Banks usually try to profit on low-interest balance transfer cards by charging a fee for taking on the debt. Generally, these charges run from 3% to 5% of the total amount of money moved. Those with good credit can usually avoid cards that incur these sorts of fees.
- Length of the promotional period: As with purchase cards, most balance transfer cards offer their best terms for at least six months. Zero-interest deals stretching for as long as 18 months also exist, especially for those with good credit.
- Rewards: No-fee balance transfer cards can also include bonus miles or points for those who transfer or spend a certain minimum during the promotional period. Take advantage of this if your cash flow will allow you to pay everything on time and in full.
The balance transfer game
Some consumers won't be able to fully pay the debt owed during the promotional period. That's fine if you're able to move the debt to a new card with a low interest rate before higher rates kick in.
Sound lucrative? It can be in the short term, saving you a substantial sum of money on interest. However, in the long term, the balance transfer game can do you more harm than good. Creditors will recognize your cut-and-run tendencies after a couple of transfers and may respond by denying your application for new cards, tarnishing your credit rating.
It's best to use a balance transfer card sparingly and pay off your transferred debts as quickly as possible so you don't have to keep jumping from card to card.
Tim Beyers has no position in any stocks mentioned. The Motley Fool recommends American Express. The Motley Fool owns shares of Capital One Financial. and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.