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If you live in America, have a decent credit score and can fog a mirror, you’ve probably received promotional offers for very low or zero percent credit cards.
A zero percent credit line for a year or more can be mighty tempting, especially if you’re laboring under the burden of high-interest debt elsewhere. Which brings us to today’s reader question.
I would really appreciate some advice about whether it is a good idea for me to take advantage of the zero percent balance transfer promotion with one of my credit cards.
I recently came into some unexpected expenses and thought that maybe this might be an opportunity to limit the high interest I am currently experiencing with my credit card, which has more than $8,000 on it and an interest rate of 15.24 percent.
Sincerely — Struck by offer but don’t want to make it a financial mistake
The short answer to your question, Struck, is yes. If you can pay zero interest on all or part of an existing balance, there’s no reason not to.
That being said, there are things you need to know about credit cards, especially the zero percent interest kind. Let’s go over them, then you can find the best card for your needs right here in our Solutions Center.
Here are some things to know about zero percent balance transfer offers.
It’s possible you won’t get it
Zero percent card offers are normally made to those with good credit — scores of 700-plus. While card companies typically screen before making offers, if your credit score changes for the worse before you submit an application, they could turn you down.
Remember, offers made by credit card companies are just that — offers. They aren’t guarantees.
Mess up once, and you could lose the zero percent rate
Be sure to read the fine print. Many cards will include conditions, such as paying on time, to retain the zero percent rate. Make a payment that’s one day late, and you could lose it.
You’ll probably pay a fee
This is the biggest drawback to transferring a balance to a zero percent card. The vast majority of issuers charge a fee ranging from 2 to 5 percent of the balance to transfer to their zero percent card.
For example, if you transfer $8,000 to a card that charges a 4 percent fee, you’ll be paying off $8,320.
Do the math
That’s why, before transferring any balance, you have to figure out how much it’s going to cost you. While the math is pretty simple, there are calculators that can help determine just how much you’ll save by transferring balances. For example, CreditCards.com has one here.
I used that calculator to find out what you’d save by transferring an $8,000 balance to a zero percent card for 18 months, after paying a 4 percent fee. It says you’ll save $1,509 in interest over the life of the 18-month promotional period, then $22 a month thereafter, assuming that you make only minimum payments. Not bad.
Granted, you may not be able to transfer the entire $8,000 balance, and we don’t know the transfer fee you’ll pay. So, although the math will probably work out to your benefit, you need to do it yourself.
Check the rate for purchases as well as transfers
Some cards offer a zero percent rate on balance transfers but charge a different rate on new purchases made on the card, as well as for cash advances. If the amount you’re transferring will devour your entire available credit line, this won’t be a concern, but if not, find out the terms.
Have you shopped it?
Since applying for credit is a hassle, when you do it, make sure you’re getting the best bang for the buck.
We have a full list of balance transfer credit cards, as well as zero percent credit cards, on this page of our Solutions Center. Simply choose the type of card you want from the menu on the left. You’ll note that some have longer zero percent interest promotional periods than others, and some have lower post-promotional rates, better rewards, lower fees, etc.
You obviously want a zero percent promotional rate, but decide on other features you’d like, then take the time to make sure you’re getting the best deal.
Are you using a Band-Aid when you need stitches?
There’s an elephant in the room with any balance transfer, namely, the reason you’re juggling debt in the first place.
As justification for carrying a balance, Struck says, “I recently came into some unexpected expenses.” One-time, nonrecurring expenses are the perfect problem to solve with zero percent credit offers. But if you’re habitually living beyond your means, a zero percent card is simply postponing the inevitable day when you reach the end of your credit rope.
Obviously, whatever the source of your debt, paying less interest is better than paying more. But as you make these transfers, take some time to evaluate what got you here and what it’s going to take to get you out. Then, if you need help, get it. We have a solution for that in our Solutions Center as well.
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Financial newsin 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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