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Everything You Need To Know About Balance Transfers And 0% APR

- Nov 11, 2020 Balance Transfers, Debit0 comments

Simple question. Would you rather save $900 or lose $900? Anyone with a bit of brains would say they’d rather save. Yet, you have that chance multiple times a month and it gets passed over. What am I talking about? 

Those 0% APR balance transfer offers that you get in the mail almost daily. 

Many people don’t take advantage of this offer because they doubt that a bank would loan them $10,000, let alone $20,000- without charging interest. 

Sounds too good to be true? Let’s delve into this topic. 

How do balance transfers work?

A balance transfer is when you repay existing debt with a new credit card. This moves your balance to the new card but does not reduce the amount you owe. Instead, the point of a balance transfer is to save money on interest charges and pay off what you owe much faster. 

Why do banks offer it?

Very simple. Banks want your debt because you will eventually pay a lot of interest on your credit card debt. Know how much? About 24.99% APR! The reason they want you to transfer the balance to them is because they hope that you won’t pay up the debt once the 18 month period passes. Then they’ll make loads of $$ off you!

You can outsmart the system though! After the initial no-interest months are up – usually 12 to 21 months- you just have to accept a 0% APR offer from a different bank. Bingo! You will now gain another 12 to 21 months, interest-free! (If at that time your credit score is low due to the balances then you can have your spouse apply for the new cards instead of you)

What should I look for in a Balance Transfer Card?

Penalty APR

Penalty APR is the increased interest that you will be paying if you make a late payment. The whole reason why you switched is because you don’t want to pay too much interest! Before you make the transfer, make sure you’re familiar with how much the penalty APR will be. If you end up paying late (which, let’s face it, happens A LOT), not only will you lose the 0% APR, but you may end up paying more interest than before you made the transfer. Luckily for you, we actually list by every card if it has a penalty APR or not (thank us later:)  Reference to the picture to see where to find it.

Length of Intro

You’ll want to verify how long the 0% APR offer will be valid for, so there are no surprises aka sudden interest rates. Also, the longer the intro period, the better. Look for 15 months or more at 0% APR. 

Grace Period

The grace period is from the day you purchase something (with your card), until the payment due date. In that time, the bank is being “nice” to you and not charging you interest on purchases (gee, thanks, banks!). But, this is only if you pay the balance in full for that month. If you don’t pay in full, you will lose your grace period, which will lead to interest being charged (on purchases). It’s like, you snooze- you lose.

Some 0% APR cards only remove the interest on balance transfers, and charge interest on purchases. That’s when you’ll want to make sure that you pay your monthly balance in full, so you don’t get charged interest for purchases.

However, other  0% APR cards will apply to both the balance & the purchases. That’s when you don’t need to be worried about grace periods (being that you don’t pay interest on it either way). 

I recommend not making any new purchases on the new card, if interest is charged on purchases. Rather, use a different card for purchases and pay 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. 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 card that is issued by their bank. For example, you can’t transfer a balance from one Chase credit card to another Chase credit card. (Please note: If the bank offers you balance transfer checks or a direct deposit, then you can just deposit the check-in your own bank account and then use the funds to pay back any credit card you want).

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 for 15 months (currently not available). But, with the US Bank Platinum card, there is a 3% fee to transfer a balance but you get an introductory 0% APR  period for 20 months! Which one is better? I’ll let you decide!


Should I get a 0% balance transfer card?

Pros – Pay off debts faster – Save money on interest

Cons – Need good to excellent credit to apply – May be approved for an amount less than you want to transfer

But in the long term, if you take advantage of the breathing room a transfer gives you and you significantly reduce your debt (by paying monthly, but not interest), then your credit score will benefit.

Don’t forget that the transfer is not magic dust that will make your debt go “poof”! It just moves it to a new place. In fact, in the short term it may affect you by knocking some points off your score (just short term). 

Find the best 0% APR offer that will fit your needs! Check out the list here

Frequently asked questions
What happens when 0% APR ends?
You will start being charged interest on your debt. For example, if the offer is valid for 12 months, then you will be charged interest on the 13th month and on (if the debt is not paid).
Do penalty APR’s last forever?
Credit card companies are required to lower the rate after 6 months if all payments are made on-time. It goes back to your normal interest rate (thanks to the CARD Act of 2009). The company may keep the penalty APR on future purchases.
Does my grace period on purchases ever return?
Yes, it does! It returns after a full cycle of paying the monthly balance in full.
Does 0% APR for 20 months really mean that I don’t pay interest for 20 months? What’s the catch?
There's no catch. That's really what it means
Can I cancel my secured credit card 10 months after I got it?
You can but it's not advisable. It's not recommended to close one of your oldest three credit cards
Can I transfer balances on a card that offers 0% APR balance transfers from multiple credit cards, so basically combine multiple balances to that single 0% APR card?
Are there currently any cards that don't charge a balance transfer fee?
As far as I am aware there is currently no such option available

Was this article helpful?

Sam Sam has nearly a decade's worth of experience educating his many readers on everything credit. Sam spends his days checking out credit cards for a full report, from the minute benefit details to the shebang of welcome bonuses. Plus studying the ins and outs of building proper credit. It’s his favorite pastime and he loves sharing it with others.

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