When you carry a balance on your credit cards and pay big interest, you may want to pay off your debt faster and ideally without paying the interest at all. In this case, consolidating your debt on a balance transfer credit card could be a good option.
A balance transfer is moving your debt from a high interest credit card to a new, low interest credit card or a card with a 0% introductory period. So basically, you are paying off one credit card using another one, and because your new credit card charges low or no interest, you have more money available to pay off your debt more quickly.
For example, you have a credit card with a balance of $4,871 and with an APR of 18%, and you want to pay off the debt over 18 months. If you leave your debt on the 18% APR card, you’ll pay more than $700 in interest over the course of those 18 months. If you transfer the debt to a card with a 0% intro APR for 18 months, you’ll pay no interest at all and save that money. More than that, if you use those saved money to pay down the balance, you’ll be out of debt a couple of months earlier.
Don’t Forget About Fees
While it is possible to find a no annual fee credit card with a balance transfer offer, it is, unfortunately, hardly possible to find a balance transfer credit card without a balance transfer fee. Balance transfer fees usually range from 3% to 5% of each transferred amount.
Therefore, when choosing an introductory 0% balance transfer credit card, see if it charges the balance transfer fee, and make sure the fee you are going to pay is worth it. There is no point in paying the balance transfer fee if the amount you are going to save on interest is less than the fee. For example, your new credit card from the above example comes with a 3% balance transfer fee. Thus, you will pay almost $150 for transferring $4,871, and almost $250 if the balance transfer fee is 5%. If you are saving $700 in interest, then the fee is worth paying.
However, if you were going to pay off the card balance faster – say in 6 months rather than 18 – the balance transfer would have saved you only a little bit over $250 in interest. So the balance transfer fee would have eaten up most if not all of your savings.
Consider Your Options
Citi® Double Cash Card – 18 month BT offer
Why it’s great: Long 0% introductory period for balance transfers + rewards.
- Balance Transfer Offer: 0% intro APR on Balance Transfers for 18 months. After that, a go-to variable APR will apply after that, based on your creditworthiness.
- There is a balance transfer fee of either $5 or 3% of the amount of each transfer, whichever is greater.
- Earn cash back twice. Earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases.
- No annual fee.
The Citi® Double Cash Card – 18 month BT offer is great if you want to transfer a balance and keep the card after the balance is paid off. The card offers a relatively long 18-month 0% intro APR on balance transfers (a go-to variable APR applies afterward) at a 3% balance transfer fee. Plus, the card offers flat-rate cash back: it allows you to earn 2% cash back on purchases – 1% for buying and 1% for paying off. Just remember that cash back is not earned on balance transfers.
Citi Rewards+® Card
Why it’s great: Long 0% intro APR period and ThankYou® rewards.
- 0% Intro APR on balance transfers for 15 months. A variable go-to APR will apply after that, based on your creditworthiness.
- Balance transfer fee — either $5 or 3% of the amount of each transfer, whichever is greater.
- Earn 20,000 bonus points after you spend $1,000 in purchases with your card within 3 months of account opening; redeemable for $150 in gift cards at thankyou.com.
- Earn 2X ThankYou® Points at Supermarkets and Gas Stations for the first $6,000 per year and then 1X Points thereafter. Plus, earn 1X Points on All Other Purchases.
The Citi Rewards+® Card is great for those who want to consolidate a small amount of debt. The 0% intro APR on balance transfers is given for 15 months (a go-to variable APR applies thereafter), and the same goes for purchases. The balance transfer fee is pretty standard – 3% of each amount transferred. In addition, the card allows earning ThankYou points on all purchases, and there is a welcome bonus offer. While it may be tough to meet the sign-up bonus requirements and pay off the transferred balance at the same time (balance transfers do not earn rewards), the card charges no annual fee, which makes the task a bit easier.
Should You Get a Balance Transfer Credit Card?
The point of a balance transfer credit card is to help you pay off your debt and simplify your finances. It’s not simply moving your debt from one credit card to another to avoid paying it off. The key is to get rid of your debt and save on interest. Therefore, you need to be sure you will be able to pay off the transferred amount within the allotted introductory period and be sure you’ll actually save money. Since the balance transfer is not always free, you will need to crunch numbers before you go in for it.
Another important thing is your credit score. Most balance transfer offers are available to people with good or excellent credit. So make sure your credit is OK to qualify.