Last week a reader asked which of two balance transfer offers was best:
I got a offer from Discover today. 0% for 18 months with a 3% fee, or 4.99% for 24 months with 0% fee. Which is better? Thanks.
When comparing two 0% offers, the analysis is easy. Assuming that the balance transfer fee is the same on both options, the one that has the longest introductory offer wins. Here, the comparison involves additional factors. So let’s walk through how to compare these two offers.
0% is Almost Always Best
As a starting point, zero percent offers almost always beat out low rate introductory offers. And that’s true even when you factor in a transfer fee. My wife and I used these deals to climb out of credit card debt while paying virtually no interest.
Now I know what you’re thinking. What if you can’t pay off the balance before the introductory rate expires? That’s exactly what happened to us. We spent about three years getting out of debt. So what did we do?
We rolled the remaining balance onto another 0% balance transfer card when the introductory period expired on the first card. We did have to pay another 3% balance transfer fee, but if the intro period is at least 12 months long, the interest savings more than make up for the cost of the fee. And that’s certainly the case here, where the low rate offer (4.99%) is higher than the transfer fee (3%).
Does 4.99% Ever Beat 0%?
There may be times when the longer low rate introductory offer beats a no interest deal. As I said above, these times should be the exception, not the rule. But it’s worth considering the following possibilities:
- Will 0% offers exist 18 months from now?: Balance transfer offers have been a mainstay of credit card marketing budgets for many years. But don’t forget that in 2009, the credit crunch all but eliminated these deals. I can recall the best offer being 0% for just 6 months, and many of these deals carried transfer fees of five percent. The point is that you shouldn’t assume that no interest intro rates will last forever.
- Will you qualify?: For the best no interest deals, you must have really good credit. While credit card issuers don’t generally disclose the specific credit score you need, our friends at Credit Karma provide some data on the score required to get a card. As an example, the average credit score of those who obtained the Slate® from Chase (which offers the only truly free 0% balance transfer offer) was 726.
The point is that you need to evaluate your ability to obtain another balance transfer credit card when the first card’s introductory period expires. If you have doubts, you may want to opt for the longer low rate offer.
- What is your rate after the intro period?: Finally, you’ll want to consider what the interest rate will be when the introductory offer comes to an end. For the Discover it® card, the rate currently ranges from 10.99% - 22.99% Variable*. If you qualify for the lower rate, than the zero percent option is probably best. If you end up with the higher rate, then you’ll want to consider factors one and two above before making a decision.
For a complete list of 0% deals, check out our regularly updated list of the best balance transfer offers.