Before we start talking about balance transfer cards, we will like to say a few words. Using a credit card is great, but we usually tend to mismanage our cards. Why like that? Simple! Many of us are plagued by poor judgment. Some of us think of credit cards as a source of free money and then comes a day when we are struck by a financial aberration called bad credit score. That’s when we repent our decision. So, be wise and use your credit card responsibly.
If you have a credit card and you realize that the interest you are paying on it is way high, you have an option of opting for balance transfer cards. Wondering what does that mean? A balance transfer card is a type of credit card which allows you to transfer the balance from your high-interest card.
Still confused? Let us take a small numeric example.
An example of how balance transfer cards work
Suppose, you have a credit card from company X. X charges you an APR of 29% (variable). On top of that, they also take an annual charge of $99.
You used this credit card and purchased something worth $600. That’s the amount you need to pay back. However, you cannot pay in within the grace period. So, you have to pay it back along with interest rate. So, roughly, you need to pay, $174 as interest along with $600. That’s quite a lot.
Now you come across company Y who is offering you a balance transfer card in which, the APR is 11%. So, you can transfer the balance of $600 (that you owe to company X) to the credit card from company Y. Once you transfer the balance, you need to pay interest of $66. So, you pay less!
Just to clarify, the example above is, well, just an example. It is for the sake of understanding the concept. The actual calculation of interest you need to pay on your outstanding balance differ.
Top 3 picks for balance transfer cards
1. The Amex EveryDay® Credit Card
The Amex EveryDay® Credit Card is a perfect card if you want it to do two jobs – balance transfer and rewards on spending.
The highlights of the card include:
- For the first 15 months, you enjoy 0% APR on balance transfer. Once this introductory period is over, the card will greet you with APR of 14.74% to 25.74% (variable).
- If you use the card in supermarkets and spend up to $6,000 in a year, you will earn 2 points for every dollar you spend. Once you cross that limit, you will earn 1 point for every dollar you spend.
- For any other purchase outside supermarkets, you will earn 1 point for every dollar you spend.
- If you spend $1,000 within the first three months from the date of getting the card, you will get 10,000 MembershipReward points.
There is a catch. If you fail to transfer the balance within 60 days from the date you receive the card, the 0% APR (for 15 months) will no longer be applicable. You will have to pay the variable APR we mentioned earlier.
Another shortcoming is that not every grocery store you visit is a supermarket. So, ensure that you shop with those stores that American Express considers supermarket.
Finally, if you are using the card on foreign trips, you will have to pay a 2.7% fee for every single transaction.
2. Citi Simplicity® Card
The Citi Simplicity® Card is perhaps the best option if you want to enjoy the longest period for 0% APR on balance transfers. The salient features of the card include:
- 0% APR on balance transfer for 21 months. After that, the APR will be 15.99% to 25.99% (variable).
- 0% APR for purchases for 12 months. After that, the APR will be 15.99% to 25.99% (variable).
- There is no late fee.
- There is no yearly fee.
- There is no such thing called penalty APR.
The card may look lucrative (which indeed it is), there are a few drawbacks. Despite being one of the best balance transfer cards, the Citi Simplicity® Card has the following downsides:
- Minimum $5 or 5% (whichever is higher) fee is charged on transferring the balance from another card.
- It is not ideal if you are traveling abroad because all foreign transactions will attract a fee of 3%
- There are no rewards for spending.
Please remember that you need to transfer the balance within 4 months from the date you receive the card.
3. Citi® Double Cash Card
The Citi® Double Cash Card is also an interesting card that you can opt for. It comes with some great features that include:
- If you transfer your balance from an existing card to Citi® Double Cash Card, you will get 18 months of 0% APR to pay off outstanding. After 18 months, the APR will become 15.49% to 25.49% (variable).
- If you buy something with the card, you get 1% cash back. When you pay off the amount, you get another 1% cash back. So, the total cash back is 2%. There is no upper limit on the cash back. The more you spend and repay, the more you get.
- The card does not have an annual fee.
- Once the cash back reward points accrue $25, you can redeem the same in any one of the following ways:
- You can request a gift card.
- You can request a check.
- You can request a bank transfer.
- You can request a statement credit.
Of course, there are a few things that you need to watch out. They are:
- A balance transfer will attract a fee of $5 minimum or 5%, whichever is greater.
- If you use the card for foreign transactions, it will attract a 3% fee per transaction.
Balance transfer cards are great, but you need to remember that you may not be eligible for such cards depending on your credit score. Also, the APR that applies to your card after the introductory period is over will also depend on your credit score. There are various other terms and conditions that you should always read/learn carefully before you get a balance transfer card to lower your expenses while paying off your debt.