Find out how to use transfer cards wisely and where to get the best ones.Like what you hear? Help us out by writing a review at iTunes. Questions go to money@qdnow.com. Thank you!
Money Girl
146 MG Should You Use a Balance Transfer Credit Card?
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This podcast is about how to use a balanced transfer credit card wisely and which cards have the best offers right now. I've received several questions on this topic, including an email from a listener named Linda. She wrote, "I'm in my last year of college and racked up $6,000 in credit card debt. The annual percentage rate is 22.99%. I've considered transferring to a credit card that has a 0% rate. Is this a good or bad thing? How do I go about the transfer? Which card would work best for me? I'm confused, please help." Linda, thanks for your question. I hope to clear up all your credit card confusion in this podcast. For anyone who may not be familiar with balanced transfer credit cards, they're a special type of card that offers a very low or 0% interest rate. That means you can keep a balance on the card without having to pay a penny in interest in some cases. You can use a transfer card to pay off higher interest debt, such as credit cards, lines of credit, or loans, and save a substantial amount of interest. Here's how it works. After you're approved for a transfer card, you'll receive it along with a small supply of checks that you can write on the new account. Let's say you're like Linda and have a $6,000 balance on a high interest card with the Crafty Credit Bank. If you want to pay off that entire balance and transfer it to the new card, you'd make one of the transfer checks payable to Crafty Credit Bank for $6,000 and mail it to them. Now your $6,000 balance is transferred from your old high interest card to your new low or no interest card. That sounds fabulous, doesn't it? Well, before you rush to submit an application, there's a catch. The catch is that the low rate on balance transfer cards is only temporary. It's an introductory offer that runs out after a certain period of time, typically anywhere from three months to a year. The amount you can transfer is also subject to the credit limit you're offered. Additionally, most transfer cards charge a fee for each balance that you transfer that could range from two to five percent of the amount you move to the card. For example, if you owe $10,000 on a high interest auto loan and decide to transfer it to a card with a three percent transfer fee, you'd be charged $300, increasing your debt to $10,300. You must have good credit to qualify for the best balance transfer deals. Even though the offer might say zero percent interest, you may only qualify for a 12 percent rate, for instance, which would defeat the purpose of getting a transfer card. To use a balance transfer card wisely, you must have a solid exit strategy for paying your balance off before the promotional rate expires. You should never, ever, transfer a balance without knowing for sure that you'll be able to pay it off in full before the low rate ends. Chifting debt to a credit card with a lower interest rate obviously doesn't make the balance go away, but it can make the debt less expensive for a limited period of time. That's called optimizing your debt. Here's a situation where doing a balance transfer makes sense. Let's say you're having a good year at work and are going to receive a $5,000 bonus within six months. You plan to use the bonus to wipe out your $4,000 credit card debt. Instead of waiting for the bonus, you can pay off the balance with a new transfer card that charges zero percent interest for six months. You won't be charged any minimum payments during the six month promotional period. If your minimum payment on the old card was $120, now you can save that amount each month instead. Over six months, you could save a total of $720. Once you receive your bonus, you would pay off the transfer card in full before the zero percent offer expires. Good taste is easy to spot, but hard to pin down. 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Go to PolicyGenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's PolicyGenius.com. It's better over here. AT&T customers switching to T-Mobile has never been easier. We'll pay off your adjusting phone and give you a new one free, all on America's largest 5G network. Visit T-Mobile.com/carrierfreedom to switch today. Pay off up to $650 via virtual prepaid master card in 15 days, free phone up to $830 via 24 monthly bill credits plus tax, qualifying port and trade and service on Go 5G next to credit required. Contact us before cancelling entire account to continue bill credits to credit stop and balance and required finance agreements do. But if you're not positive that you can pay off the full balance in time, don't risk doing a balance transfer. When the music stops playing and the low rate ends, you might get stuck with a huge double-digit interest rate on your debt and few options to improve the situation. You could try to transfer the debt to another low rate card right away. But if you're not approved for one, all the savings you would hope to gain from doing a balance transfer would be lost. You'd probably be worse off than if you hadn't done a transfer in the first place. Before you pull the trigger on doing a balance transfer, make sure that you understand all the card terms. Be extremely cautious. There are severe penalties buried in the fine print that can sneak up on you. For example, one late payment on most balanced transfer cards results in a rate hike into the stratosphere. Many default rates can go as high as 29.99%. Yikes! Here are features of transfer credit cards to evaluate. 1. The interest rate charged for transfers made during the promotional period. 2. The interest rate charged after the promotional period. That's only important, of course, if you don't pay off the card at full or if you plan to use the card afterwards. 3. The duration of the low rate promotional offer. 4. The balance transfer fees. 5. The annual card fee. Here's the quick and dirty tip. When choosing a transfer card, look for one with the lowest transfer fee and the lowest promotional rate that lasts the longest period of time with no annual fee. I'll give you the best offers that I've found based purely on their transfer offer. I'm assuming that you'd pay off the card in full before the promotion expires and not use it afterwards. So I'm not taking into account the terms of the card after the promotion expires. Don't worry about writing them down. Just go to the moneygirl section at quickanddirtytips.com where you'll find the information in the show transcript. Take a look at the discover more credit card. It offers 0% interest for 12 months with a 5% transfer fee and no annual fee. The chase slate with blueprint credit card is also a good choice. It offers 0% interest for a term that ranges from 3 to 12 months depending on your credit score with a 3% transfer fee and no annual fee. Also, consider the following 4 cards that offer 0% interest for 6 months with a 3% transfer fee and no annual fee. Miles by Discover Card, City Platinum Select Master Card, City Forward, and City Diamond Preferred Card. Card offers are always changing, so be sure to do current research on sites like BalanceTransfers.com, Card Ratings.com, and CreditCards.com To find out how much you could save by doing a transfer, there's a great balance transfer calculator at creditcards.com. If you find any better deals than the ones I've mentioned, email them to me at money@quickanddirtytips.com and I'll share them on the moneygirl Facebook page. Also, if you're in the job market, be sure to get the newest QDT audiobook, the public speaker's guide to ace your interview six steps to get the job you want. 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