What Are Balance Transfer Credit Cards?
A balance transfer credit card makes it possible for individuals to open a new credit card account that absorbs their old balance. As the name indicates, the balance on an existing credit card is transferred to a new one and to make the transfer worthwhile; balance transfer credit cards typically come with a zero-interest introductory period. During this period, no interest is charged on the new card, allowing the user to reduce their debt significantly.
If you’ve accumulated a large balance on a card with a high APR, a balance transfer credit card is your best bet. Try to secure a card with a lengthy introductory period and an APR that’s lower than your current APR. By doing so, you get adequate time to pay off your debt interest-free. If you’re not able to pay off the entire balance during the intro period, a lower APR means you still save money in the long run.
You need a good credit rating
(generally between 670 and 850) to get approved for a balance transfer credit card. To enjoy the lowest APRs, a prime credit score is required. Therefore, balance transfer cards are particularly ideal for people who got their old credit cards when they had sub-prime credit scores but have since improved their scores. With your new and improved score, you get to leverage a lower APR along with an intro period to pay off a chunk of your balance.
The Best Way to Use a Balance Transfer Credit Card
Here are some tips to help you maximize your balance transfer credit card:
1. Take Inventory
List out all your credit cards, their balances, and their APRs before you start shopping for a balance transfer card. The first consideration is getting a card with a high enough limit to accept your overall balance, the second is getting a card with a long introductory period, and the third, a card with a comparatively lower APR.
If you can secure a balance transfer card with a high enough limit to accept your total balance, great! If not, transfer your balances that have higher APRs first. This helps you maximize savings.
2. Terms Are Important
Familiarize yourself with the card’s terms to avoid problems in the future. For example, some cards only offer a 0% introductory APR for balance transfers. If you use the card to make purchases in that period, you’ll pay interest on the purchases.
Also, look out for transfer fees. Some cards - e.g., Chase Slate - waive them in the weeks immediately after you open an account, while others charge 3-5% of the amount being transferred without exemption. If you have a significant balance to transfer, you may opt for the former.
3. Pay Off Your Balance in the Intro Period
As soon as you make your transfer, create a repayment plan and stick to it. By paying off your debt before the intro period elapses, you stand to save hundreds (maybe even thousands) of dollars.
4. Never Miss Repayments
Avoid late payments; they affect your credit history and your credit card provider may hit you with a late-payment penalty. Also, never miss a payment. Balance transfer credit cards often come with stipulations that allow the provider to cancel the 0% introductory APR if the cardholder misses a payment.
Do Balance Transfer Cards Offer Rewards?
Allowing people to transfer their old balances to a new credit card and enjoy interest-free payments for some months seems like enough reward. However, some balance transfer credit cards still offer customers the opportunity to earn cash back when they use their cards to make purchases.
Top 5 Balance Transfer Credit Cards
The major factors to consider when picking out a balance transfer credit card are the length of the introductory period, waived fees and available rewards. Based on these factors, here are the top 5 balance transfer credit cards on the market:
1. Discover It® Balance Transfer
The Discover It card doesn’t have the most extended 0% intro APR period, but 18-months for balance transfers is excellent. It only offers a 6-month intro period for purchases; this isn’t so good. However, it makes up for it in cash back rewards.
Cardholders earn 5% cash back for purchases at restaurants, grocery stores, gas stations and unlimited 1% cash back for other purchases. Categories are rotated quarterly and need to be activated. Discover will also double all cash back earned in the first year with no limits. There’s a 3% balance transfer fee but no annual fee.
2. U.S. Bank Visa® Platinum Card
The U.S Bank Visa Platinum Card has a 0% intro APR period of 18 billing cycles for balance transfers and purchases. There is a 3% balance transfer fee, but no annual fee and cardholders get up to $600 cellphone protection if they pay their monthly cellphone bill with the card.
3. Capital One QuicksilverOne Cash Rewards Credit Card
The Capital One QuicksilverOne Cash Rewards Credit Card has a 0% intro APR period of 15-months for balance transfers and purchases. There’s no annual fee, no foreign transaction fee and a 3% balance transfer fee.
The card also comes with a $200 introductory bonus when the cardholder spends $500 on purchases within three months of opening the account. Cardholders also earn 1.5% cash back on all purchases; there’s no limit to how much can be earned, no rotating categories and no need to sign up before earning rewards.
4. Citi Simplicity® Credit Card
The Citi Simplicity Card comes with a 0% intro APR period of 21-months for balance transfers and 12 months for purchases (ongoing APR - 18.24-28.99% variable). However, all transfers must be made within four months, and there’s a 5% transfer fee. The best thing about this card is that there’s no annual fee, no late payment fee and no penalty rate.
5. Bank Americard® Credit Card
Bank of America’s Americard has a 0% APR period of 21 billing cycles for purchases and balance transfers made within 60 days of account opening. There’s no annual fee, no penalty rate and a 3% balance transfer fee.
Create a repayment plan for your new card and stick with it to ensure that you don’t find yourself in the situation that prompted a search for a balance transfer card in the first place. Also, after transferring the balance from your old card, don’t close the account. Doing so can affect your credit rating negatively. Instead, lock the card in a drawer somewhere and don’t make any more purchases on it.