If you’re hoping to lower your debt with a balance transfer, that no-interest credit card offer you got in the mail may seem like a good omen. However, you shouldn’t apply for the first offer you receive without shopping around. No matter how desperate you are, or how good the deals seems, ask yourself a few questions before applying for any 0 APR credit cards:
- What’s the balance transfer fee? Balance transfers aren’t free. Cards typically charge a fee of around 3% on any balances you transfer from an old card to a new one. You’re unlikely to avoid a balance transfer fee, so don’t consider one a deal breaker – but if it’s unusually high, look for a different card.
- How long is the promotional period? Balance transfer cards offer promotional periods – often between six and 18 months – during which transferred balances won’t accrue interest. Knowing the length of your promotional period is key to figuring out if you can pay off your balance before it ends. If you can’t make enough room in your budget to eliminate the debt within the time frame, keep researching offers or find a different debt payment method.
- What’s the interest rate? After your 0 APR credit card’s introductory period expires, you’ll be subject to interest. If you’ve successfully paid your debt, this won’t be a problem. But if you do have a remaining balance, you could be on the hook for a much higher interest rate than you currently pay. Make sure you know what it is – and don’t miss a payment, or you could see your rate rise sooner.
- What’s the credit limit? Paying off debt – through a balance transfer or another method – improves your credit score. But moving debt around can also hurt your score in the short-term. To minimize any immediate pain, transfer debt to a card whose limit is at least as high as your old one. In other words, don’t transfer a balance from a card with a $10,000 credit limit to one with a $5,000 credit limit.
The bottom line
Zero-interest credit cards can be a great tool for paying down debt, as long as you pick the right one and as long as you have a realistic plan to attack your balance before you’re charged interest. If not, applying for a new credit card is more trouble than it’s worth. Consider a meeting with a licensed credit counselor to look at other ways to tackle your debt.
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