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How to Compare 0% Balance Transfer Offers

A couple years ago, you could play the balance transfer arbitrage game over and over again. Apply for a credit card, get a 0% balance transfer [3], and then transfer that right into your 5% APY online savings account [4]. Man, those were the days!

Now, balance transfer periods are shorter, transfer fees are higher, and, most insidious of all, the interest rates after the 0% promotion ends are higher. With the recent credit card laws, I’m betting those offers will become even less inviting. While this will take all those balance transfer arbitragers out of the game, they can still be effective tools for people looking to catch up on their credit card debt. A 0% interest rate, even for only a few months, can give you a little bit of breathing room so here’s how you should compare balance transfer offers.

0% balance transfers only make sense if you’re serious about repaying your debt and have stopped accumulating debt. If you ever transfer a balance, you should never use the card for purchases. 0% balance transfers can be a useful tool in combating debt but if you aren’t committed, they merely delay and exacerbate the underlying problem.

Here are a few things I look at when you compare balance transfer offers:

Annual Fee

This is always the first item I review whenever I look at any credit card offer. I refuse to pay an annual fee for a consumer credit card because there’s absolutely no reason to. If you’re looking at a credit card for a 0% balance transfer and it has an annual fee, skip it. Discover and Citi both offers 0% balance transfers and neither one charges an annual fee – it’s wasted money.

Promotional Period

Number two on the list is the promotional period, generally most periods are between six and twelve months. Obviously the longer the better because that will give you more “free” time to repay the credit card debt. However, six months of 0%, even if it seems like no time at all, is better than six months of paying 18.99% any day.

Balance Transfer Fee

I don’t know of a single balance transfer offer that doesn’t carry a balance transfer fee. Back in the day, no fee balance transfers were commonplace. Unfortuantely, those days are gone.

Usually the the standard balance transfer fee is 3%. If you can find an offer that caps the balance transfer fee, that’s better than having no cap. One warning, if a credit card says they cap the fee, chances are the credit limit they offer will be in line with that. For example, if there is a 3% fee with a $75 cap, chances are they will only give a $2500 credit limit (3% of $2,500 is $75).

Post-Transfer Period Interest Rate

This one is a big thing to review because if you can’t repay the debt before the promotional period ends, your balance will be charged the prevailing interest rate. If that interest rate is the same or lower than your current interest rate, then you’ll want to transfer the balance. If it’s higher, you have to do the math and figure out if it makes sense for you. Remember to take into account the balance transfer fee.

I hope this brief guide was helpful in helping you compare balance transfer offers in the current credit environment. The deals aren’t as plentiful or as rich, but they can be helpful if you’re struggling with debt. I try to keep an updated list of 0% balance transfer offers [3] for your reference.

(Photo: andresrueda [5])