Editor’s Note: The contents of this article officially became irrelevant, at least for the foreseeable future, nearly two years ago when American Express pulled the last fixed APR for life offers from the market. This came on the heels of the removal of a 2.99% Life of Balance credit card issued by Advanta, which is now bankrupt. With the removal of these offers, credit card companies pulled the plug on a very good long term strategy to pay down debt.
Should any new offers appear on the market, Smart Balance Transfers will be the first to let you know. In the meantime, you can learn more about a type of balance transfer which may become available in the future, but is currently a relic of the past.
I. Introduction
A fixed APR balance transfer offer allows you to transfer a higher rate balance to a credit card that charges a fixed interest rate for a set amount of time that can last anywhere from a year to life. Unfortunately, no credit cards offer fixed 0% APR balance transfers for life. However, many fixed APR balance transfer offers do provide 4.9% transfers for life.
Fixed APR balance transfers may not be the best type of balance transfer for most people, as one can save a lot more money with a 0% balance transfer in the first year. Plus, at the end of the first year, one can transfer their balance again to another 0% credit card. This creates a time frame of two years to payoff credit card debt and also prevents new interest from accruing. If one wanted to, they could probably transfer balances to 0% cards for four or five years.
However, the balance transfer game is not for everyone. There is no guarantee that one will be repeatedly allowed to transfer balances as a change in income, credit score, or other factor could effect future approval.
Thus, someone looking to pay down their debt over the long term may find a fixed APR balance transfer useful.
II. Savings Examples
Let’s start by looking at a situation where a fixed APR balance transfer doesn’t work. In this case, you can either transfer a $2000 balance with a 13% APR to a fixed APR card or a 0% APR card. With both cards, you pay a $60 balance transfer fee. With the 0% APR card, you save $240; with the fixed APR card, you only save $110. Plus, if you were able to get a no fee balance transfer, you would have saved $293 with the 0% APR balance transfer.
While 0% balance transfers generally provide better savings for smaller transfers in the short run, fixed APR balance transfers offer value in the long term for individuals with larger balances. Let’s assume we’re transferring $10,000 in debt from a credit card with a 13% interest rate we don’t intend to repay for 3 years. With a fixed APR balance transfer, we’ll save close to $3000 versus what we would have paid at the 13% interest rate.
III. Conclusions
Fixed APR balance transfer credit cards are clearly a better option than repaying large credit card debt at a higher interest rate in the long term. In the short term, however, 0% balance transfer credit cards clearly outperform fixed APR offers. Plus, the ability to use multiple 0% credit cards over time can prove to be a better strategy than starting off with a fixed APR balance transfer credit card.