Ask an Expert: Should I Transfer My Balance to a Zero Percent Card?

Photo (cc) by Images_of_Money

A Money Talks News reader recently wrote in with the following question:

I have $14,500 in credit card debt on my USAA MasterCard with an interest rate of 6 percent. My minimum monthly payment is currently $220, 1 percent of the balance plus interest. I am looking at the Discover More 14-month 0 percent interest and no balance transfer fee card. Should I request a balance transfer for the entire amount (it seems pretty high and they might not approve the entire balance) or what I am comfortable paying off – about $500 a month?

Or, should I just chuck that $500 a month towards my USAA MasterCard since the savings of a balance transfer would only be around $1,000 and I would still have to pay my USAA MasterCard (1 percent minimum on $5500 plus interest) on top of the $500 I’m paying on the Discover More card?

And is there a benefit to my credit score for paying off my original credit card instead of having balance transfers on my credit report?

Thanks,
Terri

My response

Terri has a lot of credit card debt, but she is in an interesting position. On one hand, she has a MasterCard with an excellent interest rate of 6 percent. On the other hand, 0 percent beats 6 percent any day. The problem, of course, is that 0 percent is a promotional financing rate that is only valid for a limited time period.

Terri’s right when she says the Discover More card currently offers 0 percent APR on balance transfers for 14 months. But she’s wrong when she says there’s no fee to transfer a balance to this card. Earlier this year the Discover More card did have a no-fee balance transfer offer, but no longer.

The only major card I’m aware of today that doesn’t charge a fee to transfer balances is the Chase Slate.

Since paying a 3 percent fee to transfer her balance to Discover More would cost Terri $435, that’s obviously not a good idea. But what if she transferred to Chase Slate?

Assuming Terri gets approved for Chase Slate, and can transfer her balance to that card, how much should she transfer? Considering that the Slate will have a higher standard interest rate of 11.99 percent to 21.99 percent, based on her creditworthiness, she shouldn’t transfer any more than she can pay off within the 15 months of 0 percent interest. And as with any 0 percent APR promotional balance transfer offer, cardholders are just kicking the can down the road unless they also implement a realistic budget that aims to eliminate all credit card debt.

I am a fan of the Slate card because cardholders can utilize Chase’s innovative Blueprint program. Blueprint’s budgeting and goal setting tools are designed to help cardholders eliminate debt, just what Terri needs.

So, is there any benefit from paying off her original credit card instead of doing a balance transfer? No. The card is being paid off either way, and the source of the payoff does not affect the cardholder’s credit history. And since her overall debt level will be unchanged, there will be no negative effects. In fact, opening up a new line of credit will decrease her debt-to-credit ratio and may actually improve her score, albeit by a small amount.

Terri has gotten herself into debt, but at least she is crunching the numbers necessary to get out as soon as possible. By utilizing promotional balance transfer offers in the most efficient way possible, she can pay off her debt. And so can you.

Note: While we attempt to be completely objective when reporting on credit cards, this site may be compensated by issuers when a reader applies for a credit card through the links within credit card stories or on our credit card search page.

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