Three Times a Balance Transfer Makes Sense
One of the benefits of having good credit is that other credit card issuers want your business. If you haven’t opted-out of credit card offers, there’s a good chance you receive several balance transfer offers each month. As enticing as these offers are, make sure you evaluate whether taking the offer is a good idea.
Take Advantage of a Better Interest Rate
The best reason to take advantage of a balance transfer is to take advantage of the interest rate. For example, you can transfer your balance to avoid an interest rate increase. Credit card issuers are required to give you at least 45-day advance notice of a rate increase on a fixed rate credit card. So, you have that much time to find a good balance transfer deal and move the balance.
Once your credit card issuer notifies you of a rate increase, you’ll also have the ability to opt-out of the rate increase. While you’ll get to keep your current interest rate, there’s a high likelihood that your card could be closed.
Transferring a balance also makes sense when your current interest rate is high and your credit card issuer refuses to lower it. Before you move a balance from a high rate credit card, call your card issuer to ask for a better rate. Mentioning your low rate balance transfer offers may get them to budge on the rate, but if not, be prepared to move your balance to a card with a better interest rate.
Even if you’re satisfied with your current interest rate, a balance transfer can make it easier to pay off your balance. With a 0% balance transfer rate, every dollar of your payment goes toward the credit card balance. You can pay off your balance and avoid interest. Even the interest on a low rate balance transfer, e.g. 3.99%, is still less expensive than interest on a card with an 11.99% APR.
Avoid an Annual Fee
If your credit card issuer introduces an annual fee, you can transfer the balance to a new credit card – one that doesn’t charge the fee. You’ll have to close the old credit card after the balance is transferred to make sure the fee isn’t charged to your card anyway. Of course, the goal is to transfer the balance to a card that has a better interest rate and that doesn’t charge the annual fee.
Consider the balance transfer fee, too, when you’re making this decision. If the balance transfer fee exceeds the annual fee you’re trying to avoid, it makes more sense to leave your balance where it is. Look over the terms of the new credit card to see what the balance transfer fee would be. Multiply the balance you want to transfer by the transfer fee percentage. For example, if you’re considering a transfer of $2,500 with a transfer fee of 3%, the new annual fee would have to be more than $75 for the transfer to make sense. Otherwise, it’s costing you money to avoid the new annual fee.
Get a Better Credit Limit
A better credit limit might also entice you to move your credit card balance, especially if your current balance is close to the credit limit. Using a large percentage of your available credit affects your credit utilization, a factor that counts for 30% of your credit score. So, high balances could affect your credit score. Moving your balance to a credit card with a higher credit limit would lower your credit utilization and could positively impact your credit score.