Balance-transfer credit cards are most frequently used by consumers who are currently struggling with debt. In exchange for a one-time fee, they allow debts you’re carrying at higher interest rates to be switched to them to be paid down at a 0% APR for some length of time – usually between 15 to 24 months. However, there’s more a balance-transfer card can potentially do more for you than offer no-interest debt relief.
Here are several other ways a balance transfer card can help you financially.
Freeing Up Money
You could opt to use a balance-transfer credit card even if you can afford to pay your debt. Because your debt won’t incur interest for well over a year or two, you can make only the minimum payments without racking up interest charges, as you would when carrying a balance on a regular credit card.
This strategy frees you up to do something else with the money you’d ordinarily be using to pay down that balance. You could invest it, or put it into a high-yield savings account. Just be ready to immediately pay off your outstanding debt once your 0% APR period expires. If you forget to do this, and end up paying interest, you can undo some, if not all, of the money you gained in the process.
One other consideration, however: Before you decide to use this strategy, make sure that you’re likely to get a higher return on your investment than what it costs to carry out the transfer. Many cards charge a fee of 3% to 5% per transfer. This strategy works best, then, with cards that waive the transfer fee altogether.
Using The Card’s Ancillary Benefits
Like most other credit cards, balance transfer credit cards come with a slew of features that can help your finances.
For example, some balance transfer credit cards come with a credit dashboard that can help you monitor your credit score and the factors affecting many credit cards also come with travel and rental car insurance benefits that can potentially save you from having to buy your own policy. Keep in mind, though, that these may not be as comprehensive as insurance policies you could buy on your own, or that may come gratis with some other credit cards you own.
The best way to learn about these benefits is to call your card issuers and ask for a copy of your cardmember benefits. Read through the pamphlet and all the small print.
Protecting Your Credit Score
Closing a credit card account may reduce your average age of credit, especially if it’s an old account. This, in turn, will hurt your credit score. In FICO 8, the most popular credit scoring model, age of credit accounts makes up 15% of your total credit grade – so it’s not something that should be taken lightly.
This is reason enough to never cancel your balance transfer credit card — even if you don’t find any good alternative use for it. Correspondingly, you probably shouldn’t cancel any cards from which you moved debt to the balance-transfer card.
The only exception to this rule is if you somehow ended up with a balance transfer credit card that charges you an annual fee. It’s probably worth taking the temporary hit to your credit record to avoid being locked into paying money for something you don’t use. If you aren’t anticipating applying for any new credit cards or loans in the next year, go ahead and cancel the card. This shouldn’t apply to most people, as most decent balance transfer credit cards don’t charge any annual fees.