If you have a large credit card balance with a low interest rate that is about to expire, it may be wise to transfer that debt to a better credit card account. Even when you have multiple smaller credit card bills with different payment dates, you may prefer a single payment to help keep your finances straight. It’s likely, if your credit isn’t bad, that you’ve even received a few balance transfer offers in the mail.

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A credit card balance transfer is simply moving the monetary balance of one credit card to another, usually to obtain some sort of financial relief. Credit card balance transfers can be a money saver but not all offers are created equal and some may even cost you more in the end.

Late fees, transfer fees, time limits, and a whole host of potential fine print can quickly get out of hand. Keep reading to learn how to decipher the good deals from the bad ones.

What does 0% APR really mean?

A no-interest APR can, at first glance, seem like an alluring option if you’re looking to reduce your credit card payment or overall interest rate. Paying no interest on a debt may seem like a dream come true for many borrowers.

There is, however, a lot to consider before making this decision. Banks aren’t in the habit of just handing out free money, but they will offer incentives to get your business. However, the end goal for them is always profit.

Banks expect many zero interest transfers to be paid off before the introductory rate expires, so they introduce fees to ensure that they still make money. The biggest fee you’re likely to encounter is the credit card’s transfer fee. It’s charged by the receiving bank to transfer your credit card balance.

The average transfer fee is around 3% of the total amount but can go as high as 5%. This upfront fee is added to the total debt transferred and needs to be paid even if the balance of the card is paid off before the introductory rate expires.

Another hidden fee with many credit cards, not just balance transfers, is the annual fee. This is the fee the credit card company charges you just for having an account with them. Many introductory offers will exclude an annual fee but some may not.

The industry average for annual fees on all credit cards is around $58. This fee coupled with the bank’s balance transfer fee may wipe out any potential gains you get from lowering your interest rate. There are many choices available, but it’s important to read the fine print. After all, the devil is in the details.

Are credit card fees negotiable?

Before 2009 financial regulations were introduced to block banks from levying certain fees, it was possible to find 0% credit card balance transfers with little or no fees. While this is no longer the case, it is possible to negotiate with the credit card company to get the transfer fee reduced or eliminated altogether.

If you are shopping around for a good rate, it’s a good idea to call the credit card company to see if they are flexible with their terms. Often times, especially if you are already a customer with that bank, they’ll reduce the initial transfer fee if you can show them that you’ve used their services in the past and have a steady payment history.

When should you consider transferring your credit card balance?

As a lot of people know, it’s incredibly easy to rack up debt on your credit cards. Maybe you’re new to having a credit card and bought one too many lattes, or perhaps you got into some financial trouble and the balance is higher than you’d like.

There’s no one formula that will tell you if a balance transfer is the right decision for you, but there are some things that can help make your decision easier. Take a look at how much interest you’re paying and how long it’s going to take you to pay off the debt.

Having a large balance on a single credit card with a high interest rate is one reason people initiate balance transfers. You’re likely to find offers to open a new credit card with 0% interest for a certain duration usually, 6 to 12 months, though sometimes as long as 18 months.

After that introductory period, the interest rate will likely skyrocket. And if you fail to pay off the balance transfer in its entirety when the introductory rate expires, you’ll owe interest on the balance that has not been paid.

Let’s say you transfer $1,000 to a credit card with an introductory APR of 0% for 12 months. During those 12 months, you pay half of the total bill, leaving a balance of $500. If the actual interest rate of the card is 15% you’ll owe that percentage of the remaining balance, or $75.

Understanding Deferred Interest

One huge mistake many people make is mistaking a deferred interest balance transfer offer with a 0% offer. At face value, they look very much the same, but if you have a remaining balance on a deferred interest rate, your balance will be much higher because it is based on the entirety of the amount initially transferred.

Using the same example as above, let’s say again that you’ve transferred $1,000 to a credit card with deferred interest for 12 months. In those 12 months, you pay $999, leaving you with a $1 balance. If the actual interest rate of the card is 15% you’ll owe $150 on the total amount you transferred a year before, even if you’ve paid off the majority of the bill.

Obviously, this is a much larger chunk of money and can wipe out any gains you made by transferring the balance in the first place. Add that interest to your transfer fee and annual fee and you could even end up paying more than the interest you would have accrued on the old credit card. Be sure to consider the total cost of the transfer before making a decision.

Do you have to make monthly payments with a 0% balance transfer?

If you transfer a credit card balance to a card with no APR for a given amount of time, that means you don’t accrue interest during the promotional period. It does not, however, mean that you don’t have to make any payments. Minimum monthly payments are still required just like any other credit card.

This amount is typically around 4%, though it may vary depending on your bank. The tricky part is that if the credit card company receives a late payment, even by one day in some cases, they may cancel your introductory rate. From that point on, you’ll be required to pay interest on the entire amount. Any introductory rate you’ve agreed to will be null and void.

In addition to raising your interest rates, late payments may result in a lowering of your overall credit score. This can affect interest rates on other credit cards and loans, and even affect your ability to buy a house, rent an apartment, or buy a car. It’s important, especially with introductory credit card offers, to pay all your bills on time.

Paying Off the Entire Amount

In a best case scenario, you’d sign up for a credit card with an 0% APR introductory rate, transfer the balance of one or more credit cards with a higher rate, and pay off the entire amount before the promotion expires. This requires you to pay much more than the average 4% minimum payment you are required to make but takes the most advantage of the transfer.

Let’s look at an example in which you transfer a balance of $1,500 from a card with an 18.9% interest rate to a card with a 0% introductory rate for 18 months. If you made the minimum payments on the card with the 18.9% interest rate, it would take you over seven years to pay it off. Plus, you’d pay over $800 in interest.

Switching to a card with no interest for 18 months can save you a lot of money, but if you still just make the minimum payment, it’ll take over five years to reach a zero balance. Plus, that doesn’t include the transfer fee or any annual fee you have to pay.

If you were to make 18 equal payments in this scenario, your monthly bill would be $83.33. Even with a 3% transfer fee and an annual fee, the amount would be drastically lower than paying off the original credit card in the same amount of time.

What if you can’t find a 0% transfer promotion?

A zero percent promotion is not the only reason to transfer your credit balance. Branded store credit cards like clothing or furniture stores can carry much higher interest rates than a traditional bank’s credit card. It’s not uncommon for a branded card to carry an interest rate starting at 21% and rise close to a whopping one-third of your total balance.

Moving this debt to a traditional credit card can lower your interest rate significantly, sometimes to as low as 13%. You’ll likely still be required to pay a transfer fee but remember, that is sometimes negotiable. Banks will be more likely entertain the idea of reducing or eliminating that fee if they know you’ll be paying interest on the amount for the duration that you have that debt.

Another reason some people choose to transfer balances is to reduce the number of institutions to whom they owe money. Tracking payment dates on multiple credit cards can lead to late payments, penalties, and fees.

Moving multiple balances to one account can take the stress out of paying multiple bills. Even if you don’t save much in the way of a low interest rate, it’s something to consider when thinking about credit card balance transfers.

Does transferring a balance lower your credit score?

Transferring your balance to a 0% interest or low interest credit card will most likely not lower your credit score. In fact, it may actually increase it. Credit reporting companies like TransUnion, Equifax, and Experian use a lot of factors to determine your creditworthiness.

One of those factors is how much available credit you have. If you open a new credit card and transfer the balance, you likely still have an open line of credit with the old account. As long as you don’t close the other account and make more purchases, the credit reporting agencies could view this positively.

They may start to worry, however, if you initiate several transfers of the same debt. If you can’t repay your entire transferred balance before the introductory period expires, you might think about opening another credit card with a 0% introductory rate.

That way you get another 12 months to pay it off. While you can absolutely do that, the credit reporting agencies will start to look at that debt as stale and your score may lower as a result.

This is even more likely if you continue to use the previous cards without paying off the balance. As the amount of debt you owe rises in ratio to your income and your amount of open credit, the debt is viewed less favorably and may lower your overall credit score.

Credit Card Transfers: Bottom Line

Initiating a balance transfer from one credit card to another, especially one with a low transfer rate, can significantly reduce your monthly payments. It can help you pay off your debts faster and can even eliminate accruing any interest as long as you pay the debt in the given amount of time.

However, it’s important to shop around and even more important to read the fine print. A 6 or 12-month plan may be more advantageous than an 18-month plan if the fees are much lower.

Don’t just pick a card with the longest APR; instead, make sure you know exactly what you’ll be paying over the entirety of the program. Avoid these pitfalls and you could save yourself a ton of money. But choose a plan that’s not right for you, and you could end up paying a lot more than you ever expected.