Fun With Balance Transfer Offers

LOOKING FOR A quick way to ease the pain of holiday overspending? Using a balance transfer offer — wisely — could be an easy way to reduce your debts.

Consider this: Transferring $10,000 from a 15% APR card to one offering 2.99% APR for the life of the transfer would save you $10,829 in interest, and help you pay off your debt in half the time — all without paying more than the monthly minimum of $150.

But not every balance transfer is a great deal. Here's how to pick the right offer:

Skip the 0% Offers

The best offers — at least for those who anticipate paying down their loans for a while — have a rate higher than 0%, says Curtis Arnold, founder of CardRatings.com, a web site that compares credit-card offers. While those bargain-basement 0% offers are appealing, they usually last just six to 12 months. After that, the rate can shoot up to 18% or more — which spells trouble if you haven't paid off the balance.

Look instead for a card that offers a fixed rate — usually 3.99% to 6.99% — for the life of the balance, he suggests. That's still a significant cut from the standard credit-card rate of 13.3% fixed (14.7% variable). Plus, these offers are more likely to allow fee-free transfers.

Offers like this can be harder to find than one that lasts for just six months or a year, but here are two current ones:

Card	Transfer Rate	Transfer Fees	Terms
Advanta Life-of-Balance Platinum	2.99%	None	Rate applies to balance transfers made within three months of opening the card. Card is primarily intended for small businesses, but does not require a business identification number to apply.
American Express Blue Cash	4.99%	None	Rate applies to balance transfer requests submitted with application.

* Data from CardRatings.com.

Do the Math

For balances you could pay off in a year or less, look to the 0% offers, albeit with caution, says Arnold. Used to be, you could easily find a 0%, fee-free transfer offer. (And if there was a fee, it rarely topped $75, he says.) Today more issuers are dropping the maximums, meaning that 3% fee on a $10,000 balance transfer has suddenly become $300. That equates to having an APR of 6%. Hold out for the rare fee-free offer, or stick with one that has a low fee cap. To see if the offer works in your favor — or in the lender's — plug the numbers into our balance transfer calculator.

Card	Transfer Rate	Transfer Fees	Terms
AT&T Universal	0%	None	Rate in effect for the first 12 months after opening the card. No transfer fees with special introductory offer.
Citi Platinum Select	0%	None	Rate in effect for the first 12 months after opening the card. No transfer fees with special introductory offer.
Financial Rewards Visa	0%	None	Rate in effect for the first 12 months after opening the card. No transfer fees with special introductory offer.
Discover Platinum	0%	3%, $5 to $29	Rate in effect for the first 12 months after opening the card; thereafter, you must make a minimum of two purchases each billing cycle to maintain the 0% rate.

* Data from DebtSmart.com

Bargain With Lenders

An easy way to lock in a decent offer is to collect a few of those balance transfer offers and call up your current lenders and ask them to beat it, says Scott Bilker, publisher of Debtsmart.com. After all, they have an incentive to keep your business. "They'll probably come up with something competitive real quick," he says. And on the plus side, you won't need to go through an approval process.

Put That Card Away

Nearly 50% of balance transfer offers also include promotional rates for purchases, according to Mintel Comperemedia, which monitors direct-mail solicitations. But if you're planning to take advantage of the balance transfer, says Bilker, it's in your best interest to avoid other purchases until that transfer is paid off. When you make a credit-card payment, your cash always goes toward the lowest-rate part of your balance first.

If You Really Want to Be Clever Play your cards right, and you can even use a balance transfer offer to earn money. Here's how: Say you use a 12-month, 0% balance transfer offer to write a check to yourself and sock away $10,000 in a high-yield savings account earning 5.05%. Still making monthly payments of $150, you could pay back the remaining balance in full at the end of the year — and come away with $475 in earned interest.

Make Sure You Get the Rate You Wanted

When you're applying for new credit to take advantage of a balance transfer offer, bear in mind that the rate and terms you end up with may not be exactly what you were pitched. "The key phrase is 'as low as,'" cautions Arnold. "That's their way of saying, 'If your credit is stellar, you may qualify for 0%.'" Your best bet: Respond to the transfer offer by phone, and nix the application if the terms aren't to your liking.

Watch Your Credit Score

"The transfer itself won't affect your score," says Craig Watts, a spokesman for Fair Isaac, which calculates the almighty FICO score. The credit bureaus can't distinguish between a $5,000 balance transfer and the purchase of a $5,000 diamond necklace. But the resulting new account and balance can damage your score. (Having a beefed-up score can help, he says — the higher your score, the less damage you'll see.) Where you could see a hit is if you roll over your balance to a card with a lower credit line. A big part of your score is based on to what extent you have maxed out your cards. To avoid that, ask for a credit line increase at the same time you request your balance transfer — and keep your transfer to half the credit limit. For more on what goes into a credit score, click here.

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