It can creep up on you over time or be the result of one expensive day: a balance on your credit card that simply can't be paid off by the end of the month. No one likes finance charges, and worse yet, the cost of interest makes your principal even harder to pay down.
But you do have an option when you find yourself carrying a balance from month to month: opening a balance transfer credit card. The best balance transfer cards can help you store debt interest-free until you're able to pay it off, saving you money every month in finance charges.
Who are balance transfer credit cards best for?
It can be frustrating to find that the principal balance on your credit card is hardly being touched by the payments you're making each month. Making progress on debt becomes even more challenging when your card has an annual percentage rate (APR) of more than 20 percent.
But balance transfer credit cards offer favorable terms for moving debts from other cards. Many cards charge a separate APR (annual percentage rate) for balance transfers than for new purchases. On ordinary cards, these transfer rates may be higher than the rates for new purchases, but a card favorable to balance transfers may offer either a temporary or longer-term lower rate on balance transfers. The best introductory offers often offer 0 percent interest for 12 months or more.
But introductory deals begin when you open the account, which means it's wise to move your balances over quickly. Sometimes, the special rates are also contingent on transferring a balance within a set period of time--say, 30 days after opening your account.
What are the drawbacks?
There are a few possible drawbacks to balance transfer cards:
- Time limits. Because many of these offers have time limits, you could find yourself with a steep APR before you've paid off the balance. Your best bet? Make a specific plan for how to knock off that balance when you open the card, and keep a close eye on your calendar.
- Issues with other terms. A great deal on balance transfers can mask less-favorable terms on the card, such as a higher standard APR or annual fees. Always evaluate all of the card's terms and features before making a choice--especially if you plan to continue to use the card after the introductory offer.
- Limited eligibility. As with any card offer, you may be eligible only if you have good to excellent credit. If you have trouble being approved for one of these cards, work on improving your creditworthiness with regular, timely payments to your existing accounts.
How can you get a balance transfer card?
Many card companies and financial institutions offer great deals on balance transfers. Checking websites that review card offers is a great way to find the best current offers. Just remember to study all of the card's terms to make sure it meets your needs before you apply.
If you're facing a large card balance you can't currently pay off, a year of little-to-no interest could help you get back on track. And the best balance transfer cards can provide just that--and often more.