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Balance Transfers

Are fixed-rate cards better than 0 percent APR balance transfer cards?

A card with a fixed low APR may be preferable if you’re shifting over a big debt

Summary

A 0 percent APR balance transfer card can be a no-brainer when moving a big balance, but these cards often come with balance transfer fees and high regular APRs. But there may be another option – a credit card that charges you a fixed rate for the life of the balance transfer, with no transfer fees.

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If you’re strapped with credit card debt, it might seem like a no-brainer to transfer your balances from a high-interest card to one with 0 percent APR for a fixed period of time.

However, you’ll probably have to pay a balance transfer fee, and rates typically soar if you don’t pay the total balance off within the promotional period, which could compound your financial woes.

But you might be able to find another option – a credit card that charges you a fixed rate for the life of the balance transfer, with no transfer fees.

These deals aren’t easy to find, but if you locate one, it may be worth a closer look. Several credit unions have been offering balance transfer APRs as low as 4.9 percent or 5.9 percent for the life of the balance transfer, with no transfer fees.

If your goal is to pay off debt, a credit card balance transfer “can be a very powerful tool if you do it the right way,” says Gage Kemsley, vice president of Oxford Wealth Advisors in Rio Rancho, N.M.

However, “you have 31 different flavors of credit card (balance transfer) options. It’s hard to know which one is right for you,” says Kemsley, who recommends talking to a trusted banker to help you make the right choice.

There has been a plethora of 0 percent balance transfer offers recently, and consumers seem more aware of the option, says Mike Sullivan, a personal finance consultant at Take Charge America, a national nonprofit consumer credit counseling agency. The key is to “decide if you have the best deal that will save you the most money.”

A number of major credit cards currently are charging no interest on balance transfers for the first 18 months, including the Wells Fargo Platinum card (on qualifying balance transfers, then a variable APR of 17.49-26.99 percent), the Discover it® Balance Transfer card (then a variable APR of 13.99-24.99 percent) and the Citi Double Cash Card (then a variable APR of 15.99-25.99 percent).

Plenty other cards have introductory 0 percent balance transfer offers that run for 12 or 15 months.

See related:  Fixed rate vs. variable rate credit cards

Consider all the costs

If your balance isn’t paid off before the introductory period ends, your interest rate can soar to 25 percent APR or more.

“Lots of people lose money when they do a balance transfer” because they fail to pay off the transfer within the allotted time, Sullivan says. Ultimately, “it could cost you more if you can’t pay off the debt.”

And these 0 percent offers generally carry a fee of 3-5 percent of the transferred balance. So moving a $5,000 balance to a card that has a 3 percent transfer fee would cost you $150 upfront. (See table below to compare the cost of a $5,000 balance transfer under various scenarios, including fixed-rate cards and 0 percent APR balance transfer cards.)

“That could certainly offset savings,” Sullivan says.

If you are willing to look beyond traditional big banks, a number of credit unions around the country offer low fixed rates that remain in effect until the balance is paid off.

Or they offer fixed-rate credit cards, with balance transfers and credit card purchases both being charged at the same rate, such as 8.9 percent or 9.9 percent. And many of these offers have no balance transfer fees.

This past winter, a number of credit unions in such diverse locations as Florida and Wisconsin were offering a fixed 5.9 percent APR for the life of the balance transfer, with no transfer fee.

Among ongoing offers, Commonwealth Credit Union in Kentucky is offering a 4.99 percent APR on balance transfers, for the life of the transfer. Meanwhile, the Dade County Federal Credit Union in Miami was offering a 0 percent APR balance transfer for six months, followed by a fixed rate of 6.99 percent for the remainder of the time the balance exists.

And Unify Financial Credit Union, based in Manhattan Beach, Calif., is offering a fixed-rate credit card with a purchase APR as low as 8.99 percent and a special rate as low as 4.99 percent for the first six months of a balance transfer, before the balance transfer rate jumps to 8.99 percent.

Credit unions have membership requirements, so it’s important to be sure you understand those before you try to open a new credit card and do a balance transfer. Some credit unions restrict membership to a certain geographic location or profession. Others let anyone join, though you may have to make a minimal donation to a particular nonprofit organization to become a member.

See related:  Fixed-rate cards are a shield against Fed rate hikes

Know yourself

While a balance transfer at 0 percent APR for a set period of time might seem like the clear choice, that isn’t always the case.

“Only consider a balance transfer if you understand all the consequences and the benefits,” Kemsley says.

“The biggest trap of a balance transfer is that it ‘pays off’ an existing balance without actually paying it off,” says Melinda Opperman, executive vice president of the nonprofit consumer credit counseling agency Credit.org. Instead, you’ve simply moved the debt to a new loan.

It’s also important to know yourself and your financial habits, Sullivan says. For example, you may want to transfer $10,000 from a high-interest card to one with a 0 percent APR balance transfer offer for 12 months.

“If you know you can pay it off in 12 months, you can save a lot of money,” he says. “But $900 a month (for a payment) could be tough.”

If you don’t think you’ll be able to make steep monthly payments, a fixed-rate balance transfer might be a better choice.

For example, a credit union may be offering a fixed balance transfer APR of 5.9 percent.

“If you are 100 percent certain you will be able to pay off the debt on schedule, you would save more money by doing a 0 percent introductory rate with a fee,” Opperman says. “But if anything happens that will force you to make smaller payments, the lifetime 5.9 percent rate quickly becomes the better deal.”

She urges consumers to think through why they ran up the debt in the first place. After all, even if you transfer the balance, “what’s stopping you from maxing out that card again?”

How much might you actually pay if you have $5,000 in credit card debt?

The nonprofit consumer credit counseling agency Credit.org and the CreditCards.com staff calculated the cost of balance transfers under three scenarios, using CreditCards.com’s Payoff Calculator and Minimum Payment Calculator.

Each scenario shows:

  • How much it would cost to pay off a $5,000 balance, if your card has a rate of 19 percent APR
  • How much it would cost with a 0 percent APR balance transfer offer for 18 months, and you pay a 3 percent balance transfer fee
  • How much it would cost with a fixed-rate balance transfer of 5.9 percent APR and no transfer fee

$5,000 balance, paid off in 18 months:

At an interest rate of 19 percent

  • $321 per month, $785 total interest paid
  • Total cost: $5,785

At 0 percent introductory rate, plus $150 transfer fee:

  • $278 per month, $0 interest
  • Total cost: $5,150

At 5.9 percent transfer rate, no transfer fee:

  • $290 per month, $236 interest paid
  • Total cost $5,236

$5,000 balance, paid off at $200 per month:

At an interest rate of 19 percent:

  • $1,415 interest, paid off in 33 months
  • Total cost: $6,415

At 0 percent introductory rate, plus $150 transfer fee:

  • $3,600 paid off in first 18 months at 0 percent
  • Remaining $1,400 paid off in 8 more months with $95 interest
  • Total cost: $5,245

At 5.9 percent transfer rate, no transfer fee:

  • $348 interest, paid off in 27 months
  • Total cost: $5,348

$5,000 balance, paid off making minimum payments:

At a 19 percent interest rate:

  • $6,927 in interest over 18 years and 8 months
  • Total cost: $11,927

At 0 percent introductory rate, plus $150 transfer fee:

  • $2,600 paid off in first 18 months at 0 percent
  • Remaining $2,400 paid off in 12 years, 7 months with $2,810 interest
  • Total cost: $7,960

At 5.9 percent transfer rate, no transfer fee:

  • $1,996 in interest over 15 years, 11 months
  • Total cost: $6,996

What’s up next?

In Balance Transfers

Rate survey: Average card APR remains unchanged at 17.73 percent

The average APR on new credit card offers remained at a record high this week, according to the CreditCards.com Weekly Credit Card Rate Report.

Published: May 15, 2019

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