Transferring a Balance with a 0% APR
There it is again. That credit card offer stuck in your mailbox advertising a big, fat 0 in the APR column. Transfer your balance! it says, hoping you will take full advantage of their generous offer, leaving all your interest woes behind.
At least, that’s what they want you to think. The company making the offer does, in fact, deliver on their promise. You apply for the new card, transfer your balance, and receive no added interest on that balance. The trick is all in the timing and a lot of other little things as well. Yes, you will have a 0% APR, but only for a certain amount of time. Each card will make you different offers. Some might have the 0% last for six months; others might be bold and have it last for a year. But what you need to consider is the amount your balance currently is and the amount of time it will take you to pay off said balance. Will you be able to wipe out $7,000 in several months?
If not, then you will be stuck with an even bigger problem than you bargained for. For example, say your original balance was getting interest tacked on from a 14% APR. When you received the 0% offer in the mail, you failed to read the fine print, and now you are stuck with an APR of as much as 23%. This means you are paying even more interest than you were before making the transfer. The fine print, though seemingly annoying to read, is full of information you need to know before making any big credit decisions. Most 0% APR offers have the regular APR printed with the rest of the conditions so you will know what the terms are once the 0% introductory period is up.
You also need to be careful about using that card once you make the transfer. That 0% often goes only with the balance transfer – not any new purchases you might make. Those purchases can be subject to the regular APR, and even when you go to pay off your most recent credit card bill, that payment goes directly to the balance and not the new purchase. Even though you make payments, your new purchase is sitting last in line and gathering larger amounts of interest while you slowly chip away at the balance.
So what good is a balance transfer to a 0% APR offer? It is possible to utilize the offer and gain from it; you just have to pay attention to all the details and pick your moves wisely. Find out how long the offer lasts and consider the size of your present balance. Try to work out a payment plan that will allow you to fully pay off the balance within the best allotted time you can find. If possible, find a card that offers a relatively low APR if you do not think you will be able to completely pay off the balance. It is not likely you will find anything below 12% (and even 12% would be lucky!), but depending upon your current APR rate, you may be able to find something that matches. Once you have made the transfer, do not use that card for anything else. Keep it strictly for your balance and do not put any more purchases on that card. Use your other card for purchases, and this time, try to pay off your balance in full instead of leaving it to pile up. Also, when all possible, pay more than the minimum required payment. It will lower your balance much faster and get you back down to 0.
A 0% APR incentive can be useful as long as you know the ins and outs of making the most of it.