0% Balance Transfer Credit Cards
Virtually all of us have at least one credit card, most of us have at least two and for some of us credit cards are out of control. If you’re reading this article then I’m assuming you have at least a small credit card balance and are looking to find zero balance transfer credit cards so you can save money on your monthly bills and put more money on your principal balance rather than fork over your hard earned cash to the credit card companies in the form of interest.
These days credit card interest rates are out of control. They draw us in with fancy promotions, and then drop the interest rate boom on us when we’re not paying attention. Back in college there was one credit card company who used to give away the big bags of M&M’s to anyone who signed up for a credit card… smart move, I wonder how much interest revenue that $2 bag of M&M’s earned the credit card companies? I would have at least held out for the free t-shirt offer instead before I signed up for some 29.99% interest credit card.
Not all credit cards start out at a super high interest rate, some start off quite reasonable but you better not mess up by being late with a payment, even once, even by a couple of days, your interest rate will then jump up astronomically. A lot of us are responsible with our money but let’s be honest here… nobody is perfect with credit cards and I’m guilty as charged in this arena. Even though I’ve never missed a payment, I have been late on payments and you guessed it, my interest rate hit the ceiling.
Zero Balance Transfer Credit Card Offer Examples
If you have a balance (and most of us do, unfortunately) then zero balance transfer credit cards offer a great way to save money especially when you have an unpaid balance that needs to be taken care of. Of course these zero interest offers usually only last for a limited time and sometimes have terms and conditions so transferring your outstanding balance to one of these accounts will only work if you understand the terms and are responsible with your money. Otherwise don’t bother.
Balance transfers usually work this way: You find a zero interest credit card offer like this one…
Discover Platinum Card
As you can see this Discover card zero interest balance transfer offer gives you six months to pay off your balance and after that it will jump to a rate between 11.99% and 20.99% depending on your creditworthiness (ie… how responsible you are with your money, historically). The time period here is important to note because if you don’t pay off your balance in six months then you may end up with a higher rate than you had before.
You also need to know that when you transfer a credit card balance to a zero interest balance transfer credit card, they charge you a fee around 4% of the balance to make the transfer (you didn’t think they would give you a 0% interest rate because they were nice did you?) so you need to make sure that this 4% increase in your balance saves you money in the long run. In the case of this Discover Card offer above they charge exactly 4% to make the transfer.
Why Zero Balance Transfer Credit Cards Save You Money
If your outstanding balance on your existing cards is really high then it could take you years to pay off your balance, especially if you make the minimum payments. If you transferred that pesky balance to a zero percent card, you probably get around 6 months to pay it all off, so you can make up a lot more ground on that principal balance than you otherwise would. For example, if you have an outstanding balance of $5,000 on your credit card at a rate of19.99% then you would pay $921.92 in interest charges PER YEAR on that amount. If your interest rate is 29.99% (which unfortunately may be more likely for many of us) then you are paying over $1,400 interest per year… YIKES! How much would you save if you dropped this down to 0%?
Ok, so let’s compare apples to apples here and assume you have a credit card that charges you 29.99% interest, so over the introductory six month period that most balance transfers offer you would have otherwise paid $700. When you transfer your high balance to the zero percent credit card you will take a 4% hit right away making your $5,000 balance $5,200 on your new card. If you can somehow pay off your balance in that six months you save $500 in interest ($700 vs $200).
These days $500 could go to a lot of things, some are a lot of fun like new clothes, a new TV or maybe some music downloads, but I suggest using it to pay down other high interest balances and get a little Dave Ramsey “debt snowball” action going here, but hey it’s up to you.
What to Know about Zero Balance Transfer Credit Cards (benefits, Fees & Costs etc)
Now these savings sound great and all but you do need to pay attention to the terms, conditions and restrictions that apply to zero balance credit cards. You already know that a balance transfer fee will usually apply (read: will always apply) and instantly increase your balance (like it did in our $200 example above).
You need to know the amount of time provided for your zero balance. Usually it’s six months, sometimes you can find one that will give you a year and sometimes it could be less than six months but six is a good rule of thumb. Some cards will also charge you for backdated interest on the six month introductory period if you don’t pay it off fully, so you may end up getting socked if you don’t pay it all off.
Are Zero Balance Transfer Credit Cards Right For You?
So is a balance transfer to a zero interest credit card right for you? Well that’s a complicated question so I will answer it with a very wishy washy answer… yes and no.
Before you can decide if they are right for you, you need to figure out whether or not the savings is mathematically worth it. If you are saving $15 or some other smallish amount then it really isn’t worth the effort… my time is worth more than that and I hope yours is too, but if you can save hundreds or thousands then it probably is worth at least investigating.