Are 0% Six Month Balance Transfers Really a Deal?

Jeff writes: I’m about $5500 in credit card debt that I want to get out of before I go back to school in August. I’m thinking of taking up these offers for low interest rates on balance transfers I get in the mail from new cards. Is it worth the hassle? Will it adversely affect my credit rating? Can I know my credit limit before I apply so that I can see whether or not I can transfer a substantial amount?

Hi Jeff,

Thanks for reading, and thanks for your question. Congrats on deciding to get out of that debt so soon…I wish you all the best in getting it done.

I don’t know the interest rates you’re currently paying, but I’m going to guess the average is around 14.9% — maybe more. Since you have 6 months before school, that means it will take six monthly payments of $958. That’s a big chunk of cash each month, but if you can do it, getting debt-free is the best way you can possibly use that money. Now onto your question: Will a 0% balance transfer offer or two help?

Repaying your balance over six months at 14.9% is going to cost you about $243 in interest. Obviously on a zero percent card you won’t pay anything in interest, but you do have to watch out for balance transfer fees.

Most credit cards do charge a fee to transfer a balance – even when they are offering a 0% teaser rate. Those balance transfer fees are usually 3% of the balance, and 3% of $5,500 is $165. So if you transfer your entire balance to a 0% card and pay it off in six months, your total savings are only $78. If your current interest rates are higher – let’s say 17.9%, you’ll save $127.

So clearly, it behooves you to read the fine print to know what the balance transfer fee is. You used to be able to find a few cards with 0% offers and no balance transfer fees, but it’s quite rare these days.

Balance Transfers and Your Credit

Transferring balances by itself does not necessarily impact your credit score for better or worse. What will affect your credit is how many new credit cards you apply for, whether you leave the old credit card accounts open, and how big a balance you carry in proportion to your available credit.

Before you apply for a balance transfer offer, ask yourself if you think you will qualify for the credit card. Have you had a credit history for more than a year, two years, or five? (Longer is better.) Have you ever been 30 days late on a payment? (Bad.) Is your $5,500 balance less than 50% of your available credit, or are you almost maxed out? (Maxed out is bad.)

If you want to be thorough, you can check your credit report for free by taking advantage of the one month free trial of credit monitoring from a company like Experian. If your FICO score is above 700, you are probably good to go. A score from 660 to 700 is a maybe, and anything under 660 means you might not qualify for an intro rate or a large enough credit line.

In a perfect world, you would be able to see what credit lines a credit card will offer you before applying. In the real world, however, there is no way to know what credit line you are approved for until the card is already in the mail. When it comes to balance transfers, you can list your entire $5,500 balance on the application, but the new card may only give you a credit line of $2,500. They will transfer that amount, leaving the rest on the old card(s).

Assuming your credit is strong and you decide to apply for new cards, pick two or three cards with the offers you want and plan to apply to all of them at once (best done online). Apply for the best one first. If you are approved, you will likely be told your credit line (and whether it covers your transfer). If you don’t receive instant approval, it’s probably not good news, so it’s time to move onto the next card. The goal is to get approved for one or two cards that will transfer your balance to the 0% offer while minimizing the impact on your credit score.

This is because your credit history reflects each time you apply for credit. If you apply for a card through the mail, for example, and don’t hear for 30 days that you are denied credit, and then apply for another card; your credit history may already show your first credit application, which further lowers your score.

Applying for several credit cards at once will lower your credit temporarily – for between three months and up to two years, but not by a significant amount. After two years, the credit inquiries will be erased from your report.

If you are successful in transferring a balance to a new card, a good thing to do is to keep the old credit cards open. Do not carry balances on them. Use them once or twice a year if you must to keep them open. This is because it lengthens your credit history, which is highly favorable.

What’s the Verdict? Is It Worth It?

The bottom line is that 0%, six month balance transfer offers are a slippery slope. Yes, they can save you money, but probably not as much as you think – especially when you add fees into the equation. Not to mention that you need to think about the impact applying for new credit will have on your credit score.

If you have doubts about your credit, then you might want to hold off, suck it up, and repay your debt at your current rates.

But if you think you have good credit and your $5,500 balance has not maxed you out; I say go ahead and give a 0% balance transfer card a shot (preferably one with no fee). The worst that can happen is you are denied a card or two and you pay the balance off at your existing interest rate. (Repaying the balance will help your credit far more than a couple credit applications will hurt it). If all goes well, you will have almost $250 extra in your pocket this year. Good luck!

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.