0% Balance Transfer

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April 5th, 2011

One of the best ways to create a zero balance on your credit card debt is with a 0% balance transfer card. When you are given a break from paying exorbitant amounts in interest, you can finally put that extra cash towards the principal of your debt and pay it down fast.

Why Choose a 0% Balance Transfer Card?

One of the main reasons to decide on trying a 0% balance transfer card is to save money. This card allows you to take an amount from another existing card and move it over to the zero % balance card. For the time period that is specified on the card, you will not pay any interest.

This means that you will be saving a lot of money in interest because the other card is most likely set at a much higher interest rate. This gives you a chance to actually make progress paying the balance down instead of increasing the balance.

Oftentimes, the previous high-interest card will ask for payments that do not even cover the interest charges on the card. If you are not even paying the interest that has accrued on the card and are only making minimum payments, you may pay on that card forever!

Here’s an example of some of the money you might be able to save. If you had a card that had a $1000 worth of debt on it and the rate was 20%. Within a 6 month period you might pay approximately $100 for your interest charges. If you had the same balance with a zero % balance credit card then you would save that $100 entirely as you would not have to pay any interest whatsoever.

Will It Last Forever?

As the saying goes, all things must come to an end and such is the case with a zero % balance transfer card. There is an introductory period and once that period ends your rate will go back to the standard rate on the card.

The length of the period varies from card to card. There are some that offer a 6 month zero % balance transfer period and there are some that offer even up to a year or longer. It is important to assess how much debt you have and how long you think it will take for you to pay off the balance. This will help you decide which type of card you should apply for.

Considerations Before You Apply

These cards are fantastic as a tool to save money but there are limitations. If you want to use your card for other purposes besides paying down your debt then this type of card may not be the best choice for you.

Ask yourself the following questions:

Do I want to use this card for purchases, as well? If you want to use your card for purchases then you may be in for an unpleasant surprise. The standard purchase rate on zero % credit cards is often quite high.
Do you want to be part of a rewards program? These zero % balance cards usually do not come with a rewards program. If you are in search of a rewards program, you may have to apply for an additional card and use the zero % balance card for the sole purpose of paying down your debt.
How long will it take you to pay down your balance? This is a very important question to answer. You will need to look at the amount of debt that needs to be eliminated and then decide which type of card you need and how long you need the terms to be.

After you have answered these questions, you will be able to find out if this card is right for you and will be of the most benefit to you. You may find that you need additional cards that have all the features you are looking for in order to reach the goal of paying off your debt.

What Features to Look For

Before jumping into a commitment with a new card, you should look at all of the features to be certain you are getting the best deal possible.

The standard interest rate – Find out what the standard interest rate is and that will tell you what the introductory rate will revert to once the 0% period is over. If it is very high then you will have to commit to paying the balance off during the introductory period.
Is there a transfer fee? – You should find out if there is a transfer fee that you will need to pay in order to transfer your balances. Sometimes it is a flat fee but most often it is a percentage of the balance that you intend to transfer. This percentage usually ranges from 2-4%. If this is too high then you may have to look for another option to pay your balances off.
What is the annual fee? – Most cards charge an annual fee and they can range from the very affordable to the very expensive depending on the type of card you want. If the annual fee is too high then it may negate the benefits of transferring your balance over. Find out the annual fee and calculate your savings and decide whether or not it is worth the switch.

In your quest to save money, using a 0% balance transfer card has the possibility of saving you a bundle. If you use the card wisely and do not use it to make purchases then you are able to make tremendous progress with your debt reduction. Look carefully at all of the features to be sure you are making the best decision.