Last week, CardHub.com released its quarterly report on credit cards. The results indicate that balance transfer deals are on the decline, and that now might be the time to transfer your balances — if you have access to the best deals possible.
According to the report, the average length of a balance transfer introductory offer is 9.94 months. This is shorter than last quarter. As a result, CardHub believes that now is the time to lock in a good balance transfer rate — before the initial period gets even shorter.
How a Balance Transfer Can Help
Balance transfers can help you pay down your debt faster by providing you with a way to avoid putting a large portion of your payment towards interest. For many people, especially those with high-interest debt, the biggest deterrent to paying down debt is interest.
When you pay interest, all you’re doing is making a payment for the privilege of carrying the balance. It doesn’t actually reduce what you owe. Your monthly credit card payment, if you pay the minimum, includes a large chunk of interest. It’s why your balance seems to go down at a snail’s pace.
With a 0% APR balance transfer, your entire payment goes toward reducing your principal. You decrease what you owe at a faster pace, getting rid of your debt sooner and paying less over time. It’s a great way to reduce your debt as quickly as you can. A balance transfer can put you in a position to really make a dent in your debt.
Make the Most of a Balance Transfer
If you want to make the most of a balance transfer, you do need to be careful. Pay attention to the terms of the balance transfer. If you only receive the introductory rate for six months, it might not be enough time to pay off the loan. Look for the longest length possible (which might be difficult if the CardHub report is correct and intro period lengths really are decreasing).
Pay attention to the balance transfer fee. You might not have to pay interest on the amount you transfer for a set period of time, but there’s usually a balance transfer fee of between 3% and 5% of the amount you transfer. Run the numbers. If you have to pay a relatively high balance transfer fee on a relatively high credit card balance, and if you’re stuck paying the regular rate after a six-month introductory period, you might not actually end up saving as much in interest as you thought.
Also, understand that not all balance transfer deals are 0% APR transfers. In some cases, you might pay 1.99% or 3.99%. Of course, even paying 3.99% is better than paying 18.99% as a regular fee.
Take a look at your options and determine whether or not the balance transfer deal is really in your best interest. Even with some of the pitfalls of balance transfers, though, many people find that a balance transfer can be a great deal of help to them as they work to get out of debt.
What do you think? Is a balance transfer the way to go?