Balance Transfers Can Help With Your Holiday Debt

Posted March 20 2018
by PenFed Your Money
Balance Transfers Can Help With Your Holiday Debt - PenFed Your Money

It's easy to overspend during the holidays, racking up credit card charges for gifts, travel, meals and more. Even months later, you could still be feeling those purchases in the form of credit card debt.

If your interest payments are piling up, there is a way out: moving your current credit card balance to a new card with a lower interest rate. Some credit cards even offer an initial 0% APR on balance transfers for a period of time, which stops your debt from growing while you pay it off. If you have balances on multiple cards, you can also transfer all of them to one card, simplifying your monthly bills and reducing your number of payments.

If a balance transfer sounds like a good deal to you, here is what you need to know.

What features should I look for in a credit card if I want to transfer a balance?

When you want to transfer a credit card balance, typically you'll open a new credit card account to move your debt to — ideally with a good introductory offer. —. With good credit, you can usually find cards that offer 0% interest on balance transfers for six months or longer. If your debt is building up, that can be a big savings.

Here are a few things to look for when you're considering a balance transfer:

  • The balance transfer fee, which is typically 3% to 5% of the total transfer amount. A lower fee is obviously better, as this will help prevent your interest savings from being reduced by fees.
  • The interest rate, after any introductory rate expires. The lower the rate, the more savings you'll get from a balance transfer.
  • The annual fee, if any. Ideally, you want a card without an annual fee.

Is it worth transferring my debt to a  new credit card?

Balance transfers can be a handy tool to get your credit card debt under control, but you'll want to do some math to be sure they make sense for you.. If you've run up big balances on high interest cards, a balance transfer to a lower interest card usually makes sense. If you have smaller balances on cards with moderate interest rates, a balance transfer may not save you much.

To perform a quick estimate, determine your total credit card balance(s).  Multiply this amount by the balance transfer fee to determine how much it will cost you to move your balances.  Next, determine how much money you are spending on interest every month by reviewing your credit card statements.  Then, multiply the interest you are spending each month by the number of months you can get a 0% interest rate on a new card. 

For example:

$5,000 credit card balance x 5% Balance Transfer Fee = $250 Total balance transfer fee

$500 in monthly interest x 6 months 0% APR offer = $3,000 total interest saving

$3,000 in interest savings - $250 balance transfer feed = $2,750 in interest savings over 6 months

Be aware that your credit score counts. A poor credit score can mean you won't get that 0% introductory offer or a low rate when the offer expires. It can also mean that you get approved with a lower credit limit, which may not allow you to transfer your entire credit card debt to your new card. Be sure to read through exactly what you've been approved for so you know what you're getting when you transfer a balance.

Make a plan before you transfer a balance

Transferring your credit card debt to a new low interest credit card can help get your debt under control, but only if you have a plan. You'll want to be sure you budget for monthly credit card payments so you chip away at your debt during your interest free period. The more you can afford to pay off, the more you'll save — and if the card has a lower interest rate than your original debt, you're saving even if you don't pay it all off before the introductory rate expires.

Remember, however, that zero interest doesn't mean zero payments. Even if you can't afford to aggressively pay down your balance, you need to make your minimum payments every month. If you miss a payment or you're late, you could lose your introductory offer and end up right back where you started.

How to do a balance transfer

Though the exact process will vary depending on your financial institution, it's usually pretty simple. Just fill out the application to initiate the balance transfer to a new credit card.  You can usually do this online, through the mail, or call your credit card company.. You may ask about balances to transfer right in the application, or you may have to follow your credit card company's instructions and transfer balances later. There's usually a time limit to transfer a balance to get that great introductory rate, so be sure to transfer your balances before time runs out.

Then all you have to do is keep an eye on your old account and your new account to be sure the transfer goes through without a hitch. Balance transfers aren't instant, so be prepared for it to take a week or more for the balance on your existing cards to vanish. And remember: if you have a bill due before the transfer goes through, you have to pay it.

PenFed offers great cards for balance transfers

If you're looking for a great balance transfer card, look no further than PenFed's credit cards. All of our cards offer reduced or 0% interest on balance transfers for 12 months, and either no balance transfer fee or a low 3% balance transfer fee. And none of our cards have an annual fee that eats away your cash. Here are two great options:

  • To avoid any fees, look at the PenFed Promise VISA® Card. You won't find a balance transfer fee or any other fees, and transferred balances get a low % interest for the first 12 months.
  • For the lowest possible interest rates, look at the PenFed Gold VISA® Card. It offers our lowest rates, with an APR between % and %. Balance transfers have a 3% fee, but get 12 months interest free to help you get out of debt fast.
  • For additional balance transfer promotions take a look at our suite of rewards credit cards. All offer a 0% balance transfer promotion for 12 months.  While you can’t earn rewards on the balances you transfer to the card, you do get the added perk of earning rewards every time you use your card to make a purchase.
  • PenFed Pathfinder Rewards American Express® Card – Earn More, Everywhere You go
  • PenFed Power Cash Rewards VISA Signature® Card – Cash Back On Everything. Everywhere.
  • PenFed Platinum Rewards VISA Signature® Card – Get Rewards On Everyday Purchases

Apply today to get out from under your high interest payments — and start paying down that holiday debt. Rates and offers effective as of March 20, 2018 and are subject to change without notice.