There are many credit cards available in the market offering different terms and condition and interest rates. If you decide to go for debt consolidation, you may see a variety of credit card companies advertising various balance transfer deals. Some may offer 0% APR for six to 15 months, while others offer a low fixed rate for the life of the loan balance.
But you should be careful as this is the point from where things get somewhat tricky. You need to consider your current debt situation in order to decide which offer will help you save money the most. Let’s take a look at the pros and cons of each type of offer to determine which will work best for you.
0% APR Credit Cards
0% APR credit cards allow the consumer to pay zero finance charges during the promotional period, which could be from 6 to 15 months making it a good deal. But what happens after that promotional period comes to an end?
Many times very little debt is actually paid off by the time the 0% APR period ends and many consumers find themselves dashing to move the debt to a new credit card. But each subsequent balance transfer may come with a balance transfer fee, which is typically between $5-$75 or even more now that fees are on the rise.
But the good thing is that there are cards available in the market that offer 0% APR with no balance transfer fee. However, even if you do have to pay a balance transfer fee, the benefit of paying zero finance charges may outweigh the cost of a low interest rate credit card.
There is one disadvantage of 0% APR credit cards which is that consumers may be more prone to let the debt build up, as there are no related finance charges to act as motivation to pay it off.
Low Interest Rate Credit Cards
Another good option that is available is of low interest rate credit cards, which are favored more because of their fixed rate. The fact that the interest rate, or APR doesn’t change for the life of the balance transfer is a big advantage, especially if you are able to get a low rate.
Although mostly these offers carry no associated balance transfer, but a fixed low rate does carry finance charges, which though small, can add up over time.
If you go for a credit card balance transfer that offers a 2.99% fixed rate for the life of the balance, you would be able to hold the balance for as long as you’d like until it’s paid off, paying only 2.99% APR. That’s certainly a good deal, but those finance charges can still catch up to you.
If you get a card with a balance of $5,000 on the low fixed rate of 2.99% for the life of the loan, you’d be paying roughly $150 a year, not including the accrued interest or early payoff. So even though you may have avoided a balance transfer fee, the finance charges alone double the average balance transfer cost in as little as 12 months.
The American Express Clear credit card is a good option with a low fixed-interest rate for the life of the balance transfer, and carries no balance transfer fee.
Conclusion
Whichever card suits you best depends on your financial position, how much debt you have and when do you plan to pay it off. If you plan to pay it within 12 months then 0% APR is a good choice, though it does seem to take a bit more work than the fixed interest rate option. You have to stay on your toes, and make sure you transfer the balance before the promotional period ends to avoid costly finance charges.
Changing over to a new card also involves opening new credit card accounts in some cases, and incurring more fees. But all in all, it can be worth it depending on your situation.
If you do plan to execute a balance transfer, it is best to consider the offers available with your current card issuers. They may have good offers, and this way you can avoid opening a new account and hurting your credit score.
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