They used to come much more frequently, so getting that envelope with the zero percent balance transfer offer in it can be really exciting these days. If you’re burdened with interest from credit card debt, that no-interest or low-interest offer can look mighty appealing.
But are balance transfers always the best way to manage your credit card debt? Sometimes yes, sometimes no – it depends on your situation, the offer itself and your ability to stick to a credit management plan.
Here are six questions to ask yourself when that prized balance transfer offer arrives in your mailbox:
Question 1: How does it all rate?
First, consider the rate you’re being offered and compare it to what you’re currently paying. If the promotional rate is much lower than the credit card interest rate you currently have, it may be worth it to proceed to the next question on our list.
Question 2: What will it cost?
Rare indeed is the ‘no fee’ balance transfer offer. Usually, the credit card company will charge a fee for the transfer; typically around three percent of the balance you plan to transfer. If you’re transferring a high balance, think hard about that fee and examine it from multiple angles. For example, will the transfer fee exceed the interest you’d pay in a year if you stuck with your current rate?
Question 3: When does the offer expire?
How long is the offer for? Once upon a time, you could actually get transfer offers that pledged a low rate until the balance was paid as long as you made every monthly payment on time. You probably haven’t seen one of those in a long time. Offers now have finite lives. If the offer term is very brief, will you be able to make much of a dent in your debt during that time? Will you save more in interest during that term than it will cost you to make the transfer?
Question 4: What happens when the offer term expires?
For sure your rate won’t stay at that promotional level. It’s going to go up. But by how much? It’s possible that after the promotional period ends you could end up paying a rate that’s even higher than the one you had on the card from which you transferred. Be sure you understand what will happen to your rate after the promotional period ends – the law requires credit card companies to spell out this type of info for you.
Question 5: Do you have enough debt to make it worth it?
Transferring a balance does require some effort on your part, and some risk, too. If you have to open a new line of credit in order to make the transfer, it could affect your credit score since the hard inquiry will show up on your report and the change will affect your ratio of credit available to credit used. If your balance is just a few hundred dollars, is it worth the effort and credit exposure? On the other hand, if you’ll be able to pay off the debt entirely within the promotional term, it may be worth making the move. Only you can decide.
Question 6: Are you disciplined?
How do you make the most out of a promotional rate? Don’t use the card for anything but that transfer, and don’t run up additional debt on the card you paid off with the transfer. In fact, you really shouldn’t think of that old card as “paid off” at all because the debt is still there. You’ve just moved it around in the hopes of lowering the cost of that debt. Take the breather as an opportunity to start faithfully following good credit management habits and making smart use of your credit cards.