0% Interest Balance Transfer Credit Cards: Reading the Fine Print

If you are suffering from extensive credit card debt with high interest rates, you’ve probably heard that transferring your balances from a high interest credit card to one with a 0% interest rate can save you hundreds of dollars in interest and help you to pay off your debt faster. If you think this kind of offer sounds too good to be true, you could be right. There is an increasing number of credit card companies that now advertise 0% interest balance transfer offers, but with hidden charges for balance transfers buried in their credit card application’s fine print. Is this price worth paying?

In the past, many credit card companies offered no balance transfer fee credit cards and those that did charge for balance transfers limited the fees to a maximum of $75 per transaction. From late 2008 until early 2011, people scrambled to transfer their credit card balances while credit card companies suffered massive losses led to an increase in balance transfer fees coupled with a decrease in the average duration of balance transfer offers.

Despite the removal of balance transfer fee caps, a 0% interest balance transfer still remains one of the easiest ways to reduce costs and speed up the process of paying off credit card debt. For example, let’s say you have a credit card with a $5000 balance and a 20% interest rate (yes, credit card interest rates can and do get that high). By transferring this balance to a card with 0% APR, you will save over $1000 in interest over the course of one year. A 5% balance transfer fee would cost about $250, but you would still be saving about $750 in interest fees overall – savings which can be used towards reducing your credit card debt. now that balance transfer credit card fees have dropped to about 3% on average, the fee cost would drop to $150, bringing total savings to around $850 on a one year balance transfer – and much higher on a 21 month balance transfer.

So is a credit card balance transfer fee worth paying? The short answer is yes. In this example, even paying the highest balance transfer fee of 5% still works out in your favor. The long answer however, is yes, but only if the 0% APR rate lasts for 12 months or more.

If you have good credit and can qualify for a 0% APR that lasts at least 1 year, you can take advantage of some serious savings. However, if the 0% introductory rate only lasts 6 months, the credit card transfer fees can essentially cancel out the benefits of transferring your balance.

Using the above example, if you were to transfer your $5,000 balance to a credit card that only offered a 0% interest rate for 6 months, you would save a little over $500 on interest. Subtract the $250 transfer fee, and the total savings would be barely enough to reduce your credit card debt by 5%. Why would anyone choose a balance transfer credit card that only offered a 0% interest rate for 6 months when other offers last for 12 or 18 months? Unfortunately, in most cases they don’t actually realize they aren’t receiving the offer for 12 months or more.

Most credit card companies will advertise 0% rates on balance transfers for up to 12 months. However, these “up to 12 month” offers often include additional stipulations in the fine print: The 12 month offer is based on credit. So you might be approved, but only be given a 0% rate for 6 months. Most consumers forget to read the fine print. They apply for a card that offers a 0% interest rate for up to 12 months, but only qualify for a 6 month 0% rate. Unfortunately, most won’t figure out they’ve only received the introductory 0% interest for 6 months until it is too late; they have already transferred their balances and after 6 months has gone by they suddenly notice their interest rate isn’t 0% anymore.

The key to saving the most money on a credit card balance transfer is not finding a card with the lowest balance transfer fees, but instead finding a credit card with a 0% rate that lasts at least 12 months. While you might notice higher initial savings with a 1% balance transfer fee on a card that offers 0% interest for “up to 12 months,” you could end up saving more with a 3-5% balance transfer fee on a card that offers 0% interest for 12 months or longer as most people can benefit more from extra time to repay debt than they can from up front fee savings.

You should always read the fine print when filling out any application or form, but it’s especially important to read the fine print when applying for a 0% APR balance transfer to make sure the greatest savings are realized.