A 0% balance transfer credit card is a godsend if you can't make headway with your credit card debt. Paying off any type of debt is an uphill battle when you're dealing with high balances and even higher interest rates. But although you can't snap your fingers and get rid of balances, you can do something about your interest rates.
A balance transfer moves debt from one credit card to a card with a lower rate -putting thousands back into your pocket. This allows you to save on interest and pay off debt faster. Be honest, who wouldn't jump at a chance to get a low-rate credit card and get ahead? It's an undeniable money-saving strategy. But before transferring your balances, here are five things you should know about 0% balance transfer credit cards.
Look Out for Balance Transfer Fees
A 0% balance transfer credit card might be the break you need to save money and pay off debt faster, but transferring a balance isn't free. There's a balance transfer fee, and unfortunately, you're charged this fee each time you move a balance to the card.
There's no set fee for everyone, rather the amount paid is based on how much you transfer to the new credit card. For the most part, credit card issuers charge a 3% balance transfer fee. So if you transfer $10,000 of credit card debt, you'll pay $300. Paying to move debt might seem like a rip-off -and maybe it is. However, 3% might be a drop in the bucket, especially if the teaser rate helps you pay off balances sooner and save tremendously.
"Teaser Rates"are Temporary
Zero percent teaser rates are just that -teasers. They don't last forever. Some balance transfer credit cards offer 0% for the first six months, whereas others offer it for the first 12 or 18 months. Either way, 0% can jump start debt repayment. Just know that the standard APR kicks in after this period, and this rate might be comparable or higher than the rate you're currently paying. Therefore, don't apply for any random balance transfer card. Read the fine print and know what to expect interest-wise down the road.
Not Everyone Qualifies
Having an existing credit card doesn't automatically qualify you for a 0% balance transfer credit card. Just like any other credit card you've applied for, the bank will check your credit to see if you meet the qualifications. A low FICO score or a history of late payments is the kiss of death when applying for credit. Zero percent interest isn't a right, it's a privilege, and only those with good credit are approved.
You Can Transfer Other Types of Debt
Balance transfers aren't limited to credit card debt. It might come as a surprise, but many cards let you transfer other types of debt, including car loans and furniture loans. Balance transfer cards are an excellent tool if you're looking to consolidate all your debts to save money.
Teaser Rate May Not Apply to New Purchases
As far as the teaser rate goes, balance transfer cards differ. For example, some cards offer 0% interest on balance transfers and purchases, whereas other cards only offer 0% interest on balance transfers. This doesn't mean you can't make purchases with the latter, but you'll pay the standard APR from the start.