Credit card balance transfer questions.
August 25, 2014 11:08 AM   Subscribe

My husband recently had to put $5000 on his credit card after using our emergency savings. We will not be able to pay this amount at the end of the month or in the next few months. I'm interested in the option of a balance transfer to a new card with a lower interest rate.

This card he has now is at a 24% interest rate because my husband had NO credit history when he got this card. Through responsible use he has built a good credit profile. He paid his dues to establish a credit history, now we want a way to pay off this big balance at a lower interest rate. What are the pros and cons of balance transfers? What is the best way of finding a card to do a balance transfer if that is the way to go? Thanks for your advice!
posted by Coffee Bean to Work & Money (16 answers total) 7 users marked this as a favorite
These days, most balance transfer offers require you to pay 3 or 4% at the time of the transfer, so they're only worthwhile if it's going to take more than a month or two to pay it off.
posted by mr vino at 11:14 AM on August 25, 2014

There can be fees for balance transfers, usually some percentage of the balance. If you are signing up for a new card, and not using an existing card, there may be introductory offers that waive the transfer fee.
posted by Mr. Six at 11:15 AM on August 25, 2014

You can also call the current credit card company and ask for a lower interest rate (which they may or may not give you).

Was the balance done as a purchase (i.e., car repair, goods, etc.) or a cash advance?

When looking for a new card for balance transfers, read the cardmember agreement, all that fine print, very closely. Some cards will have different interest rates for balance transfers and subsequent purchases, and require that one be paid off before the other will be applied. So if you transfer your balance and then buy something with the card, say for $1,000, that might be at 18% APR and build up while your payments are being applied to the $5,000 balance transfer balance.

Also, many cards now have less than a 30 day billing cycle, 25-28 days. They also have rules in the fine print that if you are X number of days late, they can jack your interest rate up to something really high, like 29%. Make sure you can budget your monthly payments to arrive on time to avoid something like this kicking in and triggering a higher interest rate.

I would also caution anyone to avoid taking a cash advance on a credit card, as the interest usually starts from day 1 of the advance (no grace period, as with purchases on a credit card). So make sure you are using balance transfer checks or doing it over the phone with an agent and that you are very clear about the number of days in the billing cycle, the interest rate on further purchases, and any weird rules like interest rate changing after 6 months, or if you are late on a payment.
posted by Marie Mon Dieu at 11:23 AM on August 25, 2014 [1 favorite]

Are other instruments available to you?

A line of credit from a bank will frequently be half the rate of a high interest card, and may be more manageable in terms of a payment plan. I was able to get an unsecured line of credit with very modest resources during my first job as an alternative to a car loan.

The cost to transfer will simply be that of a cheque against the credit line.
posted by bonehead at 11:29 AM on August 25, 2014 [5 favorites]

I just got a American Express Blue card. They let you transfer balances and offer 0% APR on purchases and balance transfers for 15 months. There is an annual $75 fee, and I don't know if there are balance transfer fees, but you might look into that.
posted by Slinga at 11:30 AM on August 25, 2014

Recent balance transfer thread which has some good options.

Most cards that offer a 0% introductory rate will have that rate for a 12-month to 18-month period. Most will also have a 3% balance transfer fee. This is not bad, especially if you're transferring from a card with 24% interest (that is SUPER-high).

Like another poster has said, you can't generally use a card with a balance transfer on it as a purchase card, because if they charge you interest on the purchases, they'll apply your payment to the 0% part of the balance and leave your interest-accruing balance on there for as long as they can. Never mix balance transfers and purchases, unless you have 0% on both for the same amount of time.

Set up an automatic payment somewhere in the middle of the period between when your invoice is generated and when payment is due (so if your invoice closes on the 9th and payment is due on the 30th, make sure your payment is sent automatically around the 19th or 20th every month so you're always in that window). These days autopays are credited to your account within 3 days or so, even if it's your bank's billpay site. And for instance if your 0% period is 12 months, divide your balance by 12 and pay that much every month, so you're done paying around the time the 0% rate expires.

I've seen a ton of 0% offers this year. Barclaycard was the best one I've seen, with 0% for 24 months. I recently took advantage of an 18-month 0% BT on a Discover card. Look around, that FatWallet thread (start at the end) might have some good leads.
posted by rabbitrabbit at 11:37 AM on August 25, 2014 [1 favorite]

Oh, here you go: Chase Slate, no balance tranfer fee for the first 60 days, 15 months at 0%
posted by rabbitrabbit at 11:40 AM on August 25, 2014 [5 favorites]

Like another poster has said, you can't generally use a card with a balance transfer on it as a purchase card, because if they charge you interest on the purchases, they'll apply your payment to the 0% part of the balance and leave your interest-accruing balance on there for as long as they can.

As of 2010, this is no longer true. Beyond the minimum due, federal law requires that your payment be allocated to the highest-interest-rate balance first.
posted by drjimmy11 at 11:41 AM on August 25, 2014 [4 favorites]

First, try calling the credit card company and asking for a lower rate, based on longer credit history existing now than when the card was first opened. They may grant it.

How long do you anticipate this $5,000 will take to pay off? If it's less than a year, then a balance transfer may be worth it.

If it will be more than a year, you might want to consider taking out a personal loan with your bank or with a peer-to-peer lender (MeMail me for a referral). Generally, you'll need to do a full payment on the credit card, and the next bill will only be for the interest accrued up until the payoff point.
posted by tckma at 11:51 AM on August 25, 2014 [1 favorite]

rabbitrabbit seems to have the best option with that Chase Slate card. 0% interest for 15 months with no fee. So if you pay it off within those 15 months, you won't be paying any interest or extra.
posted by czytm at 12:01 PM on August 25, 2014

Apply for the Chase Slate as suggested. But if they look at that past credit history, and the new current balance, you might get rejected. In that case, go visit the bank where you got your mortgage (a previous question indicated you own your home), and talk to them about options. A home equity loan or personal line of credit would be the best outcome there.
posted by beagle at 1:11 PM on August 25, 2014

Also check out Patelco Credit Union, they have a 0% interest card that's a particularly good deal.
posted by 4midori at 1:52 PM on August 25, 2014 [1 favorite]

Chase Slate is unlikely to give you a $5k limit if you have no history.
posted by jeffamaphone at 2:55 PM on August 25, 2014

This isn't what you asked, but if he can't find a card with a favorable rate does he have the option to take a personal loan? Either from a family member, a bank, a credit union? He would still be paying interest, but hopefully a much more favorable rate. Maybe he can suspend 401k contributions until you've built up a little emergency cash too.
posted by vignettist at 3:58 PM on August 25, 2014

What is the limit on the card that the $5000 was put on, and does he have any additional revolving credit? If that $5000 is anywhere near (as in, over 30% of) the total available credit, then it is in your best interest to apply for a new card ASAP, before that balance hits the credit bureaus.

Balance vs. available credit is one of the largest factors in your score. If you went from 0% usage to, say, even 50% usage assuming the card had a limit of 10k, your credit score will drop precipitously, significantly lowering the chances you would be approved for a new card. 30% seems to be a magic number of good vs. bad. How much your score is affected all depends on your exact credit history, but there's definitely a negative impact. I saw a nearly 100-point improvement simply by paying off my cards, which previously had high balance-to-limit ratios.

Definitely shop around at the big banks - Chase, Amex, Citi are all relatively liberal with approvals IME, and have good introductory offers for people with good credit. Check out Credit Karma if you're not already a member; they will show you your credit profile and suggest cards they think you will qualify for.

It's not normally good advice to act fast when considering new credit, but in this specific circumstance it could well be worth your while.
posted by SquidLips at 8:00 PM on August 25, 2014 [2 favorites]

When I was rebuilding my credit I moved my debt around. Currently I am using the Chase Slate card but will be looking in October to move it again. Even if you could only move part of $5000 to an interest free card it would be a start. Then in 3 to six months move the rest.

The Chase Slate debt was originally on another Chase card at 18.99%. I moved it a number of times and now I am back at Chase at 0%. I used Credit Karma to find the best deals.
posted by cairnoflore at 10:40 PM on August 25, 2014

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