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Are Balance Transfer Cards Better Than Rewards Credit Cards?

When people think about applying for a new credit card, they often look at the welcome offers and the types of rewards that can be earned with everyday purchases. Sometimes you might need another perk, besides rewards, to make you click the “Apply Now” button. This might apply to you if you are carrying a balance on one of your current credit cards and are looking for a hand-up to help pay off the debt.

But, is it better to choose a balance transfer card or a rewards credit card? Applying for either type of credit card will count as a hard inquiry and affect your credit score, so you will want to compare the advantages and disadvantages of each credit card to help you make the best decision.

Advantages Of Balance Transfer Cards

While rewards credit cards might offer welcome offers of frequent flyer miles or complimentary hotel stays when you meet a spending minimum, balance transfer credit cards will not charge interest on balances transferred from other credit cards for a predetermined time period (typically 12 to 18 months). Your new credit card might charge a one-time fee of 3% to 5% of the balance transferred (credit cards need to make money somehow). But it’s still cheaper than the interest you are paying on your existing credit card.

These cards can be very advantageous if you have any type of credit card debt as you can make payments interest free for several months. This can be a great alternative to debt repayment compared to a high-interest personal loan. You should view the 0% APR as a “second chance” to getting debt-free and rebuilding your credit.

Disadvantages of Balance Transfer Cards

While balance transfer credit cards offer an introductory 0% APR, there are several drawbacks to these cards. Possibly the largest drawback is the APR after the 0% introductory period ends. If you cannot pay off your balance in full (or most of it), the interest rates on these cards can be noticeably higher than other rewards credit cards with interest rates as high as 23%.

If your balance is too high, it might be better to swap your credit card debt for a personal loan with a lower interest rate. Of course, the post-introductory rate will largely depend on the credit card and your credit score. Not all credit cards or credit scores are created equally. It might pay dividends to look at the interest rates and perks of the card after the introductory period.

If you have a high credit score and a low balance, it might be more advantageous to apply for a new credit card with a short introductory balance transfer period and a low-interest rate.

Caps on Transfer Amounts

Another downside of balance transfer credit cards is that some credit cards cap transfers to a certain dollar amount. For example, the Chase Slate limits balance transfers at $15,000 regardless of your credit limit. Depending on the balance amount you want to be transferred, you will need to verify if the prospective credit card will allow you to transfer your full amount.

A final downside of balance transfer credit cards is the lack of purchase rewards. Cardholders of balance transfer credit cards normally have to trade rewards for 0% APRs on outstanding credit card balances. This isn’t always the case as some balance transfer cards do offer purchase rewards. However, they are usually not as lucrative as those offered by rewards credit cards.

Advantages of Rewards Credit Cards

Rewards credit cards “reward” users for spending and making payments on-time. They might award cardholders with points or cash rewards. Plus, their welcome offers entice new applicants to spend a specific amount of money within the first two or three months of account opening to receive an additional bonus.

In one way, rewards credit cards are the complete opposite of balance transfer cards that offer a “second chance” to pay off their balances without interest. With both types of cards, credit card issuers make their money through transaction fees and balance transfer fees (even when the transferred balance is paid in full before the introductory period ends).

As many balance transfer credit cards do not offer purchase rewards, rewards credit cards are better for those that pay their bills regularly. They might also be a better option for somebody who has a small outstanding balance and has more to gain from long-term purchase rewards, even if it means paying interest on credit card debt. Your amount of debt might determine if short or long-term rewards are better.

Disadvantages of Rewards Credit Cards

One big downside of rewards credit cards is the relatively higher fees that are incurred with balance transfers. Credit cards need to make a profit to remain in business. That means they can only offer so many perks.

This is why most credit cards charge no interest for the first 12 to 24 months of account opening or offer purchase rewards. If rewards cardholders do not meet the payment deadlines, they do not earn rewards points on the outstanding balance.

Rewards credit card programs might also require a higher credit score than balance transfer cards. Each balance transfer and rewards program has different eligibility requirements. Some are more stringent than others. As a whole, balance transfer cards give credit card users a chance to catch up and rebuild their credit.

People with higher credit scores will qualify for rewards credit cards that offer better rewards and have lower interest rates than post-introductory APRs offered by balance transfer credit cards. If you have a history of credit card debt or low credit score, your application for a rewards credit card might not be a sure thing. The best place to get credit score information won’t hurt your credit but will also provide essential information.

Are There Credit Cards With Rewards and Introductory APRs?

Yes! There are a few credit cards that offer 0% APR on balance transfers for at least one year and rewards for everyday purchases. You may need a higher credit score to qualify for these cards, but they do exist. Our study of the best balance transfer credit cards to apply for in 2018 can be found here.

The Verdict on Balance Transfer Cards

Which type of credit card is better? It depends on your financial circumstances. If you have a manageable credit card debt of several thousand dollars that you can pay off within the 0% introductory period, a balance transfer card will be a better option. The interest-free payments will probably be a better “return on investment” than any rewards program.

Once you become debt-free, and if your credit score is high enough, you can always apply for a rewards credit card.

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The impact of balance transfer on your credit score

It isn’t uncommon for credit card customers burdened by high-interest card debt to opt for balance transfer facility to benefit from the introductory 0% APR offers. Nothing denying the fact that such refinancing can be a very cost-effective move, but it also leads to a hard inquiry into your credit, which is most likely to temporarily affect your credit score.


How your credit score gets impacted

As per FICO (Fair, Isaac and Company), any such hard inquiry made on credit leads to a temporary drop of around 5 or less points in the credit score. However, it’s normal to see the credit score bounce back up after a few months’ time as you start repaying your debts in time. In fact, in many cases, the credit score even gets better than before! The reason for that is while new credit constitutes 10% of the credit score, the total amount owed makes 30% of it. When we talk about the total amount owed, it isn’t necessarily about the actual dollar amount owed by you, but more about your credit utilization ratio. You need to divide the total amount owed by the total credit limit available to you (across all your credit cards), to arrive at this ratio.

Let’s assume that you owe $ 10,000 as credit card debt, and it’s the only debt you owe. You have only one credit card, with a limit of $ 15,000. At this point, you are provided an opportunity to transfer that $ 10,000 balance to another credit card offering an attractive limited period 0% APR facility. The new credit card also offers you an extra $ 5,000 credit line.

There’s a 3% fee associated with this balance transfer facility, so essentially your new total credit card debt will become $ 10,300 post the transfer. However, where things get interesting is that while your credit utilization ratio was 66.6% earlier, it’d become 51.5% after the transfer is complete (taking the balance transfer fee into account). Although you may owe a little more money to the card issuer, you’re most likely to see a jump in your credit score owing to lowering of the credit utilization ratio. The $ 300 fee paid by you would be put to excellent use as it’d probably save you a good deal of money in the long term. Let’s understand how.

How a credit card balance transfer saves you money

Even though you may owe an extra $ 300 on your credit card, having transferred your $ 10,000 balance to a 0% APR card is sure to save you a good amount of money in the long run. In this example, the introductory 0% APR offer is applicable for the first 18 months, followed by 15% APR (once the promotional period ends).

Let’s say you make monthly payments of $ 250 right now, and are charged 18% APR on your $ 10,000 balance.

Assuming that you avoid opting for the balance transfer facility and continue making these $ 250 monthly payments, it will take you 62 months and a total of $ 5,386 in interest to become debt free. Your total outgo, in that case, would be $ 15,386.

On the other hand, if you do opt for the balance transfer facility and continue making the same $ 250 monthly payments, you could free yourself of your card debt in 46 months, and pay only around $ 1,093 in interest. Your total outgo in this scenario would be $ 11,393.

What more, you could even opt for another balance transfer at the end of the first 0% APR promotional period, transferring the remaining balance ($5,800) to another 0% APR card (with $300 transfer fee) for an additional 15 months of interest-free honeymoon, and become debt free in total 44 months, paying just $165.6 in interest!

As you can see, the initial temporary hit you take on your credit score and the $300 balance transfer fee can save you tremendously by opting for single or multiple balance transfers.

Simply put, it’s definitely worth it!

When it may be better to wait

In case your credit score isn’t in a very good shape, it may be better to wait until it climbs back up into a respectable ‘good’ range, which is 680 or above, before applying for any balance transfer credit card. Financial institutions are generally hesitant in accepting balance transfer card applications of people whose credit score is below 680. However, they need to make a hard inquiry to obtain that information. It would mean that your score will still drop, and you’ll not be able to reap any benefits of the reduced credit utilization either.

Hence, if you’re somewhere close to the magic 680 figure, it’d be good to wait a little more. In fact, you can do certain things which are likely to increase your credit score instead, for instance continuing making minimum payments on your card/s each month and paying all your other bills in time, to avoid anything delinquent popping up in your credit report.

Continuing making all your payments on time is most likely to result in your creditor passing positive details to the credit agencies. At least, nothing negative would be reported.

Furthermore, you can even make higher than minimum payments and reduce your balance/s rapidly, lowering your credit utilization ratio and positively impacting your credit score.

Any increase in your credit score is highly likely to qualify you for better interest rates when you apply for the balance transfer card later.

It may also be better to wait for balance transfer credit card application if you’re planning to take out a mortgage anytime soon. Buying a home is easily one of the major purchases that you’re likely to do in your entire life. It’s best to keep your credit score in good shape when you submit your documents. Taking even a slight hit due to a hard inquiry (resulting from a balance transfer card application) can negatively impact the offered interest rates on a mortgage.

Final thoughts

If you qualify for a balance transfer card right now and don’t have any major purchases coming up in the near future, it may make a lot of sense to take that small and temporary credit score hit, and save a lot of money in terms of interest, in the long-term. Just ensure that you continue making the minimum due payments on the new card (without fail) after the balance transfer is complete.

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Current 0% balance transfer card offers

You’re no stranger to debt if you constantly carry some balance on your credit card; a balance that relentlessly follows and haunts you month after month! Debt, especially credit card debt on a high interest card can be crippling. And one of the best ways of erasing it is by transferring it to another card with a lower or 0% APR. This process is called balance transfer and following are some of the best 0% balance transfer card offers you can currently use for this purpose:

0 percent balance transfer cards

Discover it card

This credit card from Discover comes with a long 18 month balance transfer offer available in many different flavors. The 18 months 0% APR introductory offer period is easily amongst the longer offer periods currently being offered in the industry. There is no annual fee and you can benefit from various attractive cashback rewards too.

By choosing Discover it cashback credit card, you can get 1% cash back on all your purchases, apart from 5% cash back on rotating categories (every 3 months). The cash back can be redeemed at any point of time in the form of payments, statement credit or deposit. Not just that, Discover automatically doubles all the cash back earned by you after you complete your first year with the card.

It’s easily one of the best balance transfer cards you can use if you are trying to erase your credit card debt, and improve your credit score in the process. You get free access to your FICO score and get constant updates related to it in your monthly statements. Alternatively, you can even log in to your online account and check the FICO score update as and when you like. There is no annual fee on the card and you’re not asked to cough up any late fee for the first late payment. $0 fraud liability guarantee and zero foreign transaction fee makes this card one of the most preferred ones for many people.

You can make the most of the 18 months 0% APR offer if you’ve been wanting to make a big purchase or transfer a hefty balance. Once you’re done using those benefits, you can earn handsome cashback rewards.

Chase Slate Card

The Chase Slate cards rids you of all your balance transfer fee worries as it charges you none, provided you opt for a balance transfer within the first 60 days of purchasing the card. Not just that, you get a 0% introductory APR on all your purchases and balance transfers during the first 15 months. To top it off, there’s no annual fee on this card.

Using the Chase Slate card, you get better control over the purchases and balances you want to pay down, and their order, via the Chase Blueprint program. You’re also allowed control over your spending habits, and hence your monthly budget. Authorized users can also be added to the card, enabling you to consolidate all your household expenditure into one single program.

Chase Slate card is ideal for people looking for cheap balance transfers, wherein the introductory 0% APR offer lasts for a considerably longer period. Majority of other similar cards feature a balance transfer fee, and hence this one can possibly save you some much-needed cash.

Chase Freedom Unlimited

A relatively new card offering from the Chase umbrella, the Chase Freedom Unlimited card combines an introductory 0% APR offer with handsome cashback rewards – and that too with a $150 new cardholder bonus and zero annual fee.

The 0% APR offer is valid for the first 15 months with the card, and can be availed for both balance transfers and purchases. Cardmembers can also take advantage of the unlimited 1.5% cash back offer on every purchase made with the card.

Talking about the $150 bonus, you can get it when you spend $500 using your card during the first 3 months after its purchase. Apart from that you can even earn a $25 bonus by adding an authorized user to the card and making your first purchase within the first 3 months with the card.

That’s not all, you can travel and shop with peace as you’re provided top security/protection features like price protection, chip-enabled security, auto rental collision damage waiver, purchase protection and zero liability protection on this card.

Citi Simplicity card

Featuring an introductory 0% APR on balance transfers and purchases, lasting for an extra-long 21-months’ time period, the Citi Simplicity card easily scores above its competitors in this department. If that isn’t enough, the card provider gives you the flexibility of not having to pay any late fee or any penalty rate ever. Like its counterparts, the Citi Simplicity also doesn’t have any annual fee. However, it charges a balance transfer fee of 3% or $ 5 (whichever is higher) on the transferred amount.

The card gives you access to the Citi Price Rewind and Citi Easy Deals programs of the Citibank that get you the lowest possible price on certain purchases. There’s a $0 liability guarantee too.

If you’ve been planning a pretty hefty purchase for some time or have been wanting to pay off a huge credit card debt, there’s hardly a better deal than the 21-month 0% APR of this card.

Citi Double Cash card

Coming with the regular introductory 0% APR offer on balance transfers and purchases (lasting for 18 months), how the Citi Double Cash card scores over its competitors is that it provides you with cash back twice – once (@ 1%) when you make your purchases and 1% again when you pay for them.

However, just like the Citi Simplicity card, it comes with a 3% or $ 5 (whichever is higher) balance transfer fee. Furthermore, the cashback cannot be earned on the balance transfers and the transfers must be made inside the first 4 months of account opening. There’s no annual fee applicable on this card either.