Credit Card Debt? Zero-Percent Balance Transfers Can Help

Photo (cc) by Philip Taylor PT

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In an online survey conducted recently by the website Smart Balance Transfers, less than half of Americans had ever heard of “zero-percent-APR balance transfer offers.” While the term doesn’t exactly roll off the tongue, it’s a powerful weapon for those with credit card debt.

And that’s a lot of us, according to the Chicago Tribune

Americans racked up nearly $48 billion in new credit card debt in 2011, 424 percent more than what they charged in 2010, and 577 percent more than in 2009.

If you’re one of these people, but haven’t discovered zero-percent balance transfer offers, it’s time to become familiar with them.

So what are they, exactly?

They’re credit card offers for new customers that let you transfer your existing debt from other cards and receive a zero-percent promotional financing rate – but only for a limited time. Here are the details in plain English…

How do they work?

After you’re approved for a new credit card, you simply call and tell them you wish to perform a balance transfer. The new bank will ask you for your old bank’s account numbers and how much you want to transfer. Typically, cardholders have 30 days in which to make a transfer to qualify for the zero-percent offer.

Balance transfers are normally subject to a fee of between 3 and 5 percent of the amount transferred – the Slate from Chase is the only current offer that has no balance transfer fee. The promotional interest rate applies for a limited time (15 months for the Slate card) and then standard rates apply to any unpaid balance.

Any downside to these offers?

Other than the Slate card, every bank will require a balance transfer fee that’s added to your debt. So you must balance the cost of these fees against the interest you would have paid.

Another risk is less tangible: Since the balance is temporarily free from interest charges, the urgency to pay down debt can dissipate, only to reappear as the end of the promotional period ends and the standard (and much higher) APR kicks in.

Finally, even when interest isn’t being accrued, having a high level of debt can still negatively impact your credit score.

How do I find the best offer?

Compare the terms of competing offers. Look for the lowest balance transfer fee, the longest duration of terms, and the best standard APR that will apply afterwards. (Our credit card search can help. Just click on “Balance Transfer” in the left column to get a list of candidates.)

Other factors worth considering: the annual fee, the benefits, and whether the zero-percent promotional rate applies to new purchases as well.

What should I avoid?

What you shouldn’t look for are reward cards. If you’re in debt, the last thing you need is an incentive to spend more.

Also, reward cards will usually have higher fees and standard interest rates than other cards. And most banks won’t allow you to transfer a balance from a card issued by the same bank. Finally, there are plenty of offers with only a 3 percent balance transfer fee, so try to avoid those charging 4 or 5 percent.

For more information about zero-percent balance transfer offers, read my 5 Questions to Ask About Zero-Percent Card Offers.

If you’re in debt, some banks are so anxious to earn your business that they’ll offer you zero-percent interest for more than a year. If you have credit card debt that you’re trying to pay off, consider these cards. Just be sure to use them to pay down debt, not put it on hold.

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