All year long, credit card companies have been pulling the plug on no fee balance transfer deals, raising balance transfer fees, and making it harder for consumers to get approved for 0% credit cards. And the market just isn’t getting any better.
With no credit cards offering no fee balance transfers for more than 6 months, and credit availability becoming an issue, the risk involving in opting for a no fee balance transfer over a low fee balance transfer is incredibly high. Here are just a few drawbacks to current no fee balance transfer deals:
- Current offers only last six months, and don’t include the time it takes to process a balance transfer. This can be up to one month, which not only reduces your 0% period to 5 months and shaves 10-15% of the savings you would get during that period.
- With uncertainty in the credit markets, it may not be possible to get a 0% APR for a full year after the 6 month intro period expires.
- The only no fee offer from a major bank comes from the very troubled Washington Mutual. This offer, the ESPN Visa, has a variable rate of up to 23.49% after the 0% period expires. Since applying for a credit card has a small negative impact on your credit score, it is feasible that you could end up with a higher interest rate after your balance transfer than you had before it.
Given all these drawbacks, choosing a 0% no fee balance transfer card can end up costing a lot more interest than it would save in fees. Here are a few examples:
- If you transfer $4000 from a single credit card, you would save $75 in fees versus a low fee balance transfer card. If your current rate is 12%, you would then save around $240 on interest during the first six months. However, you would essentially end up repaying that amount during the next six months, depending on how much of your balance is repaid. If, however, you paid the $75 fee and got a 0% APR for a full year, you would save $430 over the course of a year. Clearly, paying a balance transfer fee is a much better option.
- If you transfer a total of $4000 from two cards that each have balances of $2000, you would pay $120 in fees with a low fee card (3% of each transaction). However, at the end of a year, your total savings would be $385 with a low fee card as opposed to about $0 with a no fee card that only offers a 0% APR for 6 months.
Clearly, while saving $75 to $120 on fees may seem like a good deal, securing a 0% APR for a full year provides significanly more value. The key, however, is to stick with a card that offers low fee transfers (i.e., 3% with a maximum of $75 as opposed to 3% with no limits.) Presently, the most prominent company offering low fee balance transfers is Discover.
To calculate how much you can save with a low fee balance transfer credit card that offers a 0% APR for 1 year, try our balance transfer calculator.
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