Do you have credit card debt? You're hardly alone if you do. A September 2014 report from the Federal Reserve reveals 38.1 percent of American families were carrying forward card balances last year. If the amounts involved are small, this needn't bother you much, but they can be a real burden if they start to add up. And, let's face it, it can take only a couple of emergencies -- some medical expenses, say, or your car breaking down -- for the sums to start to get scary.
The trouble is, most consumers are paying annual percentage rates (APRs) in the mid- to late-teens on their plastic, and those numbers make this sort of debt expensive. Just as bad, using more than 30 percent of your available credit can ding your credit score.
No-fee balance-transfer credit cards
If for any reason you're uncomfortable with your card balances, one way forward can be to transfer them to a new card that offers an ultra-low or even zero APR for an introductory period, maybe up to 18 months, but more commonly 12 or 15. That can give you a real breather from high interest charges, and allow you to pay down your debt more quickly. However, you're unlikely to get approved for these products unless your score is good or excellent, It's important to keep in mind that each credit card company has its own standards for determining creditworthiness, and exact scoring standards vary based on a variety of factors.
The downside with the majority of these cards is that you have to pay a balance-transfer fee, which is commonly 2 or 3 percent of the amount of each transfer, and is generally added to the new balance. However, a select few products don't levy that fee, which means you don't have to begin your debt reduction plan by adding new debt.
If you read on, you can discover a balance transfer credit card that levies no balance transfer fee and also offers a zero-percent introductory balance-transfer APR. But most no-balance-transfer-fee products move you to an ultra-low rather than zero rate. For example, and in alphabetical order:
- DCU Visa® Platinum Secured Credit Card. This is interesting because it's a secured card, meaning your credit limit is likely to equal a deposit you're required to pay up front. So this may be good for those with poor credit, who wish to boost their credit score. APR for balance transfers and purchases is currently listed at 11.50 percent. No balance-transfer fee.
- First Tech Federal Credit Union Visa Platinum Credit Card. Introductory balance-transfer APR of 3.99 percent for six months, and then competitive continuing rates of 8.99 percent to 17.99 percent variable APR for purchases and balance transfers depending on your creditworthiness. No balance-transfer fee.
- Lake Michigan Credit Union Max Rewards Visa. This card doesn't charge a balance-transfer fee and doesn't have an introductory rate, but its ongoing variable APR (on purchases and balance transfers) ranges from 10.00 percent to 17.75 percent, depending on your creditworthiness, which is good for a product with its generous rewards.
- Simmons Bank VISA® Platinum Rewards. Another with no balance-transfer fee and no introductory rate but an attractive variable APR of 9.25 percent for balance transfers and purchases.
No balance-transfer fee plus 0 percent introductory rate
Right now, an Internet search reveals only a couple of cards that let you save with a $0 introductory balance transfer fee, 0 percent introductory APR for 15 months on purchases and balance transfers, and $0 annual fee. Plus, receive your Monthly FICO® Score for free.
For people looking to make a transfer and pay it off during the 15 months of zero interest, this could be a great option - especially given the initial $0 balance transfer fee (transfers made after the first 60 days of card membership will be assessed a 5 percent fee with a minimum of $5).
Clearly, this deal is likely to be the most attractive for many, but you can use credit card calculators to model different repayment plans and identify the best for you. Especially if you need to pay your debt down over a period longer than 15 months, it's possible the PenFed Promise Visa® Card, say, could work out to be cheaper.
Balance transfers and credit scores
Anthony Sprauve is a senior consumer credit specialist with FICO, the company behind the most widely used scoring systems. He says there's no difference score-wise between opening a balance transfer and a normal credit card. You might take a short-term hit from the application, but that should fade as providing you manage the account responsibly.
However, he warns that "just moving the debt without reducing it is not going to help you -- and over time could hurt you."
"The card that you move the balance from you should put in a drawer so that you're not tempted to use it," Sprauve says. "And then focus on paying down that balance to get it below 30 percent of available credit. So that might mean making adjustments in your spending habits."
If you do have existing credit card balances and are considering applying for a balance transfer credit card offer, it's worth noting that opening a new card account can help your credit score initially, or at least offset the short-term hit caused by the application, by causing a change in your credit utilization. This will vary based on your current credit utilization and on the spending limit of the new card.
"Balance transfers look good on paper, but can be problematic in practice," says Gail Cunningham of the National Foundation for Credit Counseling. "People need to understand that moving debt around is not the same as becoming debt free. If an individual is a very disciplined person, the balance-transfer strategy could be a good fit, as he or she would repay their debt at a lower interest rate. However, very often that little voice in a person's head starts convincing them that it won't hurt to charge just a few purchases on the new card since the interest is so low."
And that's the key to these products. Used within a thought-out and rigorously applied debt-reduction plan, they can be genuinely useful way to save money and pay down balances more quickly. Absent the plan and the self-discipline, they can leave you with more debt than you started with.