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Balance Transfer Credit Cards

Making no interest credit cards work for you

Thursday, August 02, 2012 at 5:54:03 PM

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These days, lenders are now increasing the number of credit card offers they extend to consumers specifically for accounts that carry no interest rate for the first several months the account is open.

These types of accounts - which are technically known as balance transfer credit cards - can be extremely beneficial as long as you use them correctly. If you have a large outstanding balance on one or more of your current cards, this kind of credit card application might be just the thing you need to get your finances back on track.

The benefits of a balance transfer

A balance transfer card will specifically grant you several months of 0 percent interest rates on any amount of money you move from an old card to a new one, and are designed to help you chisel away at whatever debt you may have racked up over the months or years you've had the account.

During the introductory period, you'll be able to make routine payments into your outstanding debts without worrying about the added cost of interest charges increasing your balance, and therefore can reduce your principal more quickly. If possible, you should plan to be able to pay off your entire balance by the end of that few months so that you're getting a fresh start on your new card when the intro period ends.

Are there any pitfalls to look out for?

Another great reason to make sure you're reducing your outstanding balance all the way on a new credit card offer is that not doing so could end up costing you big and here's why:

Many balance transfer accounts that still have some amount of loan principal left over when the introductory period ends will apply interest on the remaining total retroactively. That means that, if your introductory period was 12 months, you'll be hit with interest charges for an entire year. As such, you should make all efforts to reduce your balance to nothing - or at least as significantly as possible - to avoid this event.

In addition, you should be sure to make your payments on time. Normally, a late payment will trigger a rate increase which could offset the benefits of any credit card balance transfer you are considering.

What you need to consider

Because of the above condition, you should first think about exactly how much credit card debt you have currently and how long you'll need to pay it off in its entirety. Balance transfer credit cards typically have different introductory periods, ranging from as little as three months to as long as 24, though most fall between six and 18. Given your past repayment habits, you might be able to figure out just how quickly you can cut your entire balance.

Further, you will need to account for the balance transfer fee which many of these accounts carry. Usually, this is about 3 percent of the total amount being transferred, and you'll need to factor that into your repayment decisions. However, the 3 percent total will likely be far less than you'd face in interest charges for maintaining your current cards.

You should also try to determine what is included in the intro period. Some balance transfer cards - usually those for borrowers with excellent credit - will also extend the 0 percent APR to purchases made during the initial period. However, most do not. In addition, you should think about how the ongoing interest rate will affect you after the intro period ends.

Have an exit strategy

At the end of the introductory period your rate is going to go up. If you have not determined that you can pay the balance down before that time your should have another option in mind. You can potentially do another balance transfer, but you need to allow yourself time to apply for the replacement card and gain approval. Be sure to make a note of the date when your introductory APR will end.

Compare top balance transfer cards to your lifestyle and credit type

When you are ready to determine which are the best balance transfer cards for you needs, has a page dedicated to balance transfer credit card applications. In this page you can find a detailed list of the best balance transfer card from a wide range of issuers.

You can also use our credit card search engine to find cards that provide credit card balance transfer, plus other benefits. Just check the box for 'balance transfer', plus any other features you want such as 'cash back' or 'rewards'. The credit card search engine feature also allows you view your credit card options in a table/matrix form where you can see all the most important facts at a glance.

Once you have your short list of cards, you should look at what each card could save you in interest, based on your previous repayment and spending habits, and weigh that against any fees or rewards you forego to determine if a credit card balance transfer is right for you.

Complete your credit card application carefully.

Getting approved for your best credit card deal means you should put your best foot forward. This means that you should take time to fill out your application carefully and truthfully. Use current addresses and don't exaggerate the numbers.

Above all, don't make the mistake of submitting several applications if you only need one card. Each application you submit creates an inquiry on your credit report, and too many inquiries can make lenders nervous. It may even create the impression you are desperate for credit. Submit a single  and await the result. An online credit card application is turned around relatively quickly and you can always re-apply for another program later if you are turned down.

For more information:

Visit our Credit Card Application Blog and see the article: Choosing balance transfer credit cards.

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