Credit Card Transfers

One of the ways that credit card companies attempt to recruit new customers is to offer the opportunity to transfer an old balance to a new card at a promotional rate. Used strategically, these offers can not only save a great deal of interest expense, but also make it easier for one to get out of debt in less time.

Balance transfers are quite simple to achieve. They are typically done either during the application process, or right after receiving the card. One will simply give the issuer of the new card one’s existing account information. The issuer will then pay off those old accounts and increase the balance on the new account. The benefit of this is that issuers will frequently offer reduced rates for a balance transfer. For instance, one major national issuer is currently offering 0% APR for up to 15 months on tranferred balances. One needs to beware of any fees, though. Some issuers will, for instance, treat after-the-fact balance transfers as cash advances and levy exorbitant fees and interest. The issuer discussed here does not do this, but does charge a 3% balance transfer fee. This is still an excellent deal, even with the fee.

Truly savvy individuals with extremely strong credit can extend these benefits by doing another credit card transfer when the promotion is due to end. This way, they can carry their credit card debt at little or no interest. Those who are interested in paying down their debt more quickly can also take advantage of the reduced interest to pay more principal down.

To understand the benefit of these balance transfers, an example is helpful. Taking a $3,000 balance on a card with 18% interest, one can expect to make a minimum payment of $75.00 per month, based on 1% of the balance plus interest due. Every month, the payment will go down a little as the total balance decreases, and one can expect to pay the card off in 18 and a half years and to pay $3,923 in interest. If one, instead, makes a steady payment of $75.00 per month, the debt will be paid off in 62 months with a total interest cost of $1616.

Assuming that someone transfers the balance to a card at 3% APR for a year and pays a 3% fee, the monthly payment would be $38.63 until the card returns a standard rate. The wisest strategy is to make a $75.00 payment even with the reduced interest, which will reduce the balance to $2272 at the end of the year. By changing cards every year, even paying the 3% transfer fee, that person would pay the balance off in 3 years and 10 months.

Taking advantage of balance transfer offers can reduce the time that one needs to pay down a credit card balance by 35%. It can also reduce the total cost of interest and fees from $1616 to $450. For those who have the self-control, credit card transfers are an excellent money-saving strategy.