Everything You Need to Know Before Making a Balance Transfer

updated: 01/17/18

If you are an American citizen and you have good credit, you probably receive 0% Apr. balance transfer offers in the mail daily. But many people don’t take advantage of these offers. Why? Because they think, “How in the world is a bank offering me $10,000, $15,000 or even $20,000 interest free?” This must be too good to be true.

But I already took advantage (many times) of these balance transfer offers and I can tell you that it is what they claim it is. Yes, you can get $20,000 from banks for 21 or even 24 moths while paying 0% on interest! (check out a list here).

So Why Do Banks Offer It?

Very simple. Banks want your debt, because you will eventually pay a lot of interest on your credit card debit. About 24% Apr! That is why the bank wants you to transfer the balance to them because they hope that once the 24 or so months are up, then they will become rich on you.

But because the banks want to take advantage of you, that does not mean you have to be a fool and let them. You can do as follows. After the 24 months are up, just pick up another 0% Apr. offer from a different bank, and bingo, you will get another 21 or so months interest free!

What You Need to Know Before Making a Balance Transfer

Here is what you need to know before making a balance transfer.

Penalty Apr.

Penalty Apr. is the Apr. you will be paying if you make a late payment. So before making a balance transfer make sure you are familiar with how much the penalty Apr. will be, because if you will end up being late (it happens to the best of us) not only will you be losing the intro 0% Apr. offer, but you may end up paying more interest now than what you were paying before you made the balance transfer.

Grace Period

When you make a purchase on a credit card, as long as you pay your balance in full every month, you will not have to pay interest on new purchases until after the due date on your statement. So when you make a balance transfer, you will not be paying the balance in full by the first month, so keep in mind that you will lose your grace period and end up paying interest on your new purchases from the Date of the purchases. (I recommend not making any new purchases on this card rather use a different card and pay it in full every month)

Minimum Payment

Before making a balance transfer you will want to make sure you will be able to afford the minimum payment amount. Therefore, make sure you are familiar with how the minimum payment is calculated on your new credit card. (You can find a list here.)

You Can’t Transfer a Balance From the Same Bank

Banks do not allow you to transfer balances from one card to another credit card issued by their bank. For example, you can’t transfer a balance from one Chase credit card to another Chase credit card.

Balance Transfer Fee

Always check what the fee will be to transfer the balance for example on the Chase Slate card there is no fee to transfer a balance and you get an introductory 0% Apr. period for 15 months, but with the Santander Sphere there is a 4% fee to transfer a balance but you get an introductory 0% Apr.  period for 24 months! Which one is better?!?! I’ll let you decide…..

So check out the list here and find the best 0% Apr. offer that will fit your needs.

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How a Minimum Payment is Calculated by Card Issuers

Updated: 01/10/18

If you are applying for a new credit card or if you’re planning to make a balance transfer from one credit card to another, it is of utmost importance to know how the minimum payment is calculated by the new card issuer. Not every bank has the same method as to how they calculate a minimum payment so be aware when transferring your balance from one card to another. Your minimum payment may go up and you will want to make sure that you can afford the new minimum monthly payment. (If the new card has a lower or 0% Apr offer, then in most cases your minimum payment will go down, because your monthly interest will be less.)

Check out this list:

Bank How The Minimum Payment Is Calculated
American Express The greater of these:

$35 or 1% of the balance plus monthly interest and fees*

Bank Of America The greater of these:

$25 or 1% percent of the full balance plus the monthly interest and fees

Barclay Bank The greater of these:

$27 or 1% percent of the full balance plus the monthly interest and fees

Capital One The greater of these:

$25 or 1% percent of the full balance plus the monthly interest and fees

Chase The greater of these:

$25 or 1% percent of the full balance plus the monthly interest and fees

Citi The greater of these:

$25 or 1% percent of the full balance plus the monthly interest and fees or 1.5% of the full balance.

Discover The greater of these:

$35 or 2% percent of the full balance or $20 plus the monthly interest and fees.

Santander The greater of these:

$25 or 1% percent of the full balance plus the monthly interest and fees

Synchrony The greater of these:

$25 or $35 if you had any late payments within the last six months or 1% of your full balance plus the monthly interest and fees

Us  Bank The greater of these:

$30 or 1% of your full balance plus the monthly interest and fees

Wells Fargo The greater of these:

$15 or 1% percent of the full balance plus the monthly interest and fees

*Amex will also add 1/24 of your over the limit amount.

As you can see most banks adopted the same calculation method which is: The greater of these two: $25 or 1% percent of the full balance plus the monthly interest and fees.

Discover will charge you $35 or 2% percent of your full balance without adding the monthly interest or $20 plus the monthly interest. So basically, if you have a $10,000 balance with a 0% Apr. promotion, your minimum payment will be $200 (2% of 10,000). But if you pay a monthly interest of, let’s say 24%, then your minimum payment will be $220 (the monthly interest is $200 plus $20). But if your Apr. is 12% percent the minimum payment will be $200 (two percent of your balance). Complicated? I know. Let me try, though, to make it simpler. Remember this:  if you have a high Apr., then Discover’s minimum payment will be less than with most other banks. If you have a low Apr., then your minimum payment will be more with Discover than with most other banks.

Citi will charge you $25 or 1% of your balance, plus the monthly interest and fees, or 1.5% of your full balance. What this basically means is that in normal cases your minimum payment will be 1% plus the monthly interest and fees. But if you have a promotion 0% Apr. offer, then your minimum payment will be 1.5% of your total balance. To make it simpler, remember this: If you have a 0% Apr. offer with Citi, then your minimum payment will end up being 1.5%, which is more than most banks. If not, then your minimum payment will be the same as with most banks.

What is Better: A Higher Or Lower Minimum Payment?

The higher your minimum payment is, obviously, the faster it will take you to pay off your balance. But you don’t want to make it hard on yourself. Since with a lower minimum payment, you have the option, on a rainy day to pay less, and still not be smacked with a late fee and/or receive a late mark on your credit report.

Definitely, make it a priority to get your credit card debt down the quickest way possible by trying to pay off the biggest portion of your balance affordable to you each month.  Don’t just pay the minimum payment, regardless of what the minimum payment is.

Next week we will post more on balance transfers and how to save money on interest payments, so stay tuned!

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