The offers used to come in the mail by the bucketfuls: “0 APR on balance transfers.” While the frequency of these envelopes arriving in the mail has slowed to a crawl in recent months, they’re still out there. Many are struggling with debt, and rightfully need to employ every tool in their arsenal to reduce and eliminate it. For those with outstanding credit card debt, one option in particular should be evaluated: a 0 APR credit card balance transfer. Here’s what to look for when debating the 0 APR balance transfer deal:
Terms of the 0 APR Balance Transfer Deal
What are the fees and surcharges associated with the balance transfer deal? What does the post- 0 APR credit card rate leap up to? How long does the 0 APR period last? What other factors affect the status of the 0 APR period?
Your risk of not paying off the transferred amount by the end of the 0 APR period
Lenders obviously see a chance to make some money off of you by giving zero percent offers – they’re banking on you not clearing the balance before the zero percent window expires so that they can charge the maximum APR. Thus, if you do choose one of the several zero percent offers, first identify clearly through your budget and debt plan the feasibility of eliminating this transferred debt.
Find out the default interest rate charged by the lender for late payments or an over-the-limit balance
When using the snowball method, prioritize paying down the amounts on the 0 APR balances, especially if the 0 APR window is short (a few months), in order to avoid the risk of getting hit with the default rate. If the 0 APR period is long, then prioritize paying down your highest interest amounts, but then stop and switch towards paying off the 0 APR balances just in time to clear them before the low interest rate period expires.
Essentially, there is no universal formula that can be applied to all cases. Each individual should systematically examine their own outstanding debt balances, identify which approaches are going to best motivate, and set up a clear budget plan and debt payment schedule that includes basic safeguards against falling prey to the expiration of the 0 APR period.
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
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