Using 0% APR Balance Transfer Credit Cards to Pay off Debt
0% Balance Transfer Credit Card Strategy
In a debt poll on this site a few weeks ago, one-third of 20somethingfinance readers indicated that they were struggling to pay off credit card debt (the second highest selection behind student loans). However, unlike low-interest student loans, paying off credit card debt should not be done passively. With interest rates in the teens and above, credit card debt snowballs even if you are taking decent jabs at it on a monthly basis.
You need to attack that debt with fury. Attack it like Kobayashi attacks hot dogs. And one of the first steps to doing so is to stop the bleeding. If used the right way, a 0% balance transfer APR credit card may be a first step. But they are a slippery slope that you must tread carefully.
Balance Transfer Precautions
In order to play the balance transfer game without getting burned, you first need to take a few steps to ensure you’re not getting into further trouble. If you can’t complete the following steps, balance transfers are not for you:
- Cut up your old card, and new card. You haven’t used credit cards wisely before, why would you start now?
- Compare 0% APR balance transfer credit cards. Make sure that you read all of the fine print in the terms and conditions. Most cards charge a balance transfer fee, which could be a significant cost (but ideally less than you’d be paying if you kept the balance with your old card). It used to be that many card offers included zero balance transfer fees. Now they are almost impossible to find.
- Proponents of this strategy recommend keeping your old card open and not using it after you make the switch, so as to not hurt your credit score.
- Pay off your balance, once transferred, crazy fast. Always pay it off before your APR goes to the normal rate, or you could owe retroactive fees, and may ultimately be paying more in interest in fees than if you had not done the balance transfer at all.
0% APR Balance Transfer Credit Card Comparison
Here’s a look at some credit cards that offer some form of a zero percent APR balance transfer and even one with no transfer fee on top of that.
- Introductory APR: 0% Intro APR on Balance Transfers and Purchases for 12 months. After that, the APR will be 12.99%-22.99% based on your creditworthiness. This APR will vary with the market based on Prime Rate.
- Transfer Fee: 3% of each balance transfer, $5 minimum.
- Annual Fee: $0*
- Cashback Rewards: Earn 5% cash back from Citi at Home Depot, Home furnishing stores and home and garden stores between 4/1/13 and 6/30/13, with enrollment.
- Bonus: $100 cash back after $500 in purchases within the first 3 months of account opening.
- Introductory APR: 0% on balance transfers for 18 months and on purchases for 6 months.
- Transfer Fee: 3%
- Annual Fee: $0
- Bonus: n/a
- Note: A very solid card all around with great cash back rewards!
Again, read the fine print and run a cost benefit analysis to make sure that you are coming out ahead if you do a balance transfer. Only use this strategy if you are determined to pay off all of your credit card debt within the introductory 0% APR offer.
Balance Transfer Discussion:
Have you use a 0% APR balance transfer credit card or a similar strategy to attack credit card debt? Tell us about your strategy.