Promotional balance transfer offers are everywhere. Some credit card users see these offers as too good to be true, while others really just don’t have the patience to put the numbers together to see how much they can save. Let’s take a quick look at how these programs work and see how much cardholders can save when they transfer their balance to a new card with a promotional balance transfer offer.
A Simple Example
Say I have a credit card balance of $3,000, and a minimum payment of $100 per month. To pay off this balance in 15 months, I would have to pay $200 a month in principal plus the monthly interest payments. Over the next 15 months, these interest payments would start off at $30 per month at 12% interest, $42.50 at 15%, and $52.50 at 21%, but decline as the balance was paid off. If I average it out, I will be paying a total $225, $318, or $394 in interest over the payoff time of 15 months. That is a lot of money.
Now say I transfer my balance to the best balance transfer credit card on the market today, the Slate card from Chase. It offers 15 months of 0% interest on balance transfers with no balance transfer fee or even an annual fee. Clearly, I am saving between $225-$394, depending upon my interest rate.
What If I Continue To Carry A Balance?
Now let’s say I am only paying off $100 a month in principal. In this case, my $3,000 debt is only going to be reduced in half over the next 15 months. Therefore, I am going to pay more in interest over that time period. My interest payments will start off the same as the previous example, but at the end of the 15 months, I will still have a balance of $1,500. Therefore, my average balance over that time period will be $2,250. My interest paid at 12%, 15%, and 21% will be $337, $422, and $591 respectively. But remember, had I chosen to go with the Slate 0% offer with no fee, none of those interest payments would be required.
In either scenario, the outcome is clear; cardholders can reasonably expect to save hundreds of dollars in interest payments over the life of a 15 month promotional financing offer. While other competing cards will require a balance transfer fee of 3-5%, Slate from Chase remains the only balance transfer product on the market with no fee. Because this particular card lacks a balance transfer fee, the amount saved on a $3,000 balance transfer will be a minimum of $90 more than could possibly saved on a competing offer.