Published March 12, 2013
If you think all credit cards are the same and any one will do, think again.
Choosing the right credit card to match your financial situation and spending habits can bring benefits that go beyond convenience and rewards, it can also help lower the cost of most types of debt.
A recent CardHub.com study revealed that roughly 73% of major credit card issuers enable you to shift over an auto loan balance, and 64% also allow transfers from mortgages, small business loans, student loans, home equity lines of credit and payday loans. Considering that you can turn whatever interest rate you’re currently paying into 0% for up to 18 months, that’s a rather intriguing proposition to say the least.
Here’s how a balance transfer works: the credit card issuer pays off what you owe with your original lender, becoming the holder of your debt in the process. You in turn can get a low interest introductory period – these days, typically 0% for more than a year– before higher regular rates kick in. Even when you factor in the standard fee for this sort of transaction – 3% of whatever you transfer – the savings can be significant.
Just compare the costs you’d incur with each major issuer’s best balance transfer offer (see the chart below) to what you’d pay under the terms of your current loan or credit account.
There are advantages other than savings with a balance transfer, especially if you’re able to leverage the underrated ability to transfer auto loan debt. An auto loan balance transfer also triggers the transfer of your title, which in turn eliminates the threat of repossession.
However, if you will not be able to pay off the loan before the interest rate increase, it might not make sense to make the switch. It’s also important to make sure the interest rate will indeed be lower than what you are currently paying because not everyone will qualify for 0% interest. Also be sure to check to make sure there is no extra fee associated with making a transfer and that carrying this much debt on a card will not hurt your credit score.
With that said, here are a few simple steps you can take to make the most out of any balance transfer:
At the end of the day, balance transfers aren’t for everyone. But given how much debt the average person is currently trapped under, a lengthy 0% term could sure go a long way.
Odysseas Papadimitriou is CEO of Card Hub, a leading website that conducts personal finance industry research and helps consumers find the most valuable credit cards for their needs.