When Is 1.99% Better Than 0% Annual Credit Card Interest Rate?
You probably receive offers in the mail for credit card balance transfers. Usually there's a strong hook such as 0% annual interest rate for a period of time like 6 months. However, there's plenty of fine print in those offers which you should be aware of which may surprise you.
Balance Transfer Transaction Fees
Although many credit card balance transfer offers lure you in with 6-12 months of 0% interest, there are balance transfer transaction fees which you must be aware of. This fee increases the balance that you owe. For example, a recent offer from Bank of America included a 4% transaction fee on the amount of the advance. There is also a minimum transaction fee of 10 USD so if your advance is for less than 250 USD your fee as a percent of the draw gets worse. Under these terms, a 100 USD cash advance to change a belt in your car engine would cost you 10 USD too.
When Is 1.99% Better Than 0% Annual Credit Card Interest Rate?
Let's compare two credit card balance transfer offers that a major bank is currently promoting. The offer gives you two choices: Choice #1
0% promotional rate good until March 2012
When Is 1.99% Better Than 0% Annual Credit Card Interest Rate?
Choice #2
1.99% promotional rate good until June 2012
Credit Card Options If You Have Low Credit Scores
Obtaining a secured credit card and using it properly is a sure-fire way to help rebuild your credit score. For example, My Credit Card Approval is known for matching customers with less than perfect credit with banking institutions. When you shop around for a secured credit card always ask which credit bureaus the credit card company reports too. It will be most beneficial to you to use a card that reports to one or more of the three major credit reporting agencies such as TransUnion, Experian and Equifax.
Which choice is a better deal?
The answer depends on how confident you are that you can pay off the balance in full before the promo rate expires. When each deal expires, your new annual interest rate will kick in. In today's rate environment that would be 13.24%.
When Is 1.99% Better Than 0% Annual Credit Card Interest Rate?
If you know for sure that you could pay off your balance by March 2012, then paying zero percent interest makes sense. However, if there's a chance that you might take longer than March 2012 to pay it off, it doesn't take much time for the 1.99% offer to make more sense.
If you do not pay anything toward the 7,500 USD balance, while you have the 0% interest deal running, you will pay more interest before the end of the May 2012 billing cycle than if you paid the 1.99% all along. If your timeframe for exhausting this debt is longer than March 2012, then it is less expensive for you to take the 1.99% offer. Don't forget that you paid that 4% transaction fee at the beginning (300 USD) in this example so don't let that money go to waste. Do whatever you have to do to pay off your debt during the promotion period.
Special Repayment Rules Can Cost You More Interest
Another kicker to check for in the fine print of credit card balance transfer offers is how the bank applies your monthly payment. If you have account balances with different interest rates and you only make the minimum monthly payment, the bank may allocate that payment to the lowest APR balances first. Meanwhile, your higher rate balances continue to grow.
