Low- or no-interest rates and credit cards generally don't go together, except when it comes balance-transfer offers.
Despite rates on cards and other consumer debt continuing to creep up, issuers are still offering balance-transfer deals that come with no or low interest for a set period.
While the deals aren't free — most cards charge a balance-transfer fee — they can offer qualifying consumers a way to hack away at their debt faster and avoid hefty interest charges, at least for a while.
"If you have a bunch of credit card debt but still have pretty good credit, these deals are definitely worth considering," said Matt Schulz, senior industry analyst for CreditCards.com. "You can save a ton of interest."
Consumer credit card debt now stands at $808 billion, according to recent data from the Federal Reserve Bank of New York. That's up $61 billion from a year ago. Serious delinquencies —those accounts more than 90 days behind — are rising as well, to 4.6 percent as of Sept. 30 from 4.4 percent as of June 30.
Meanwhile, the average interest rate on card debt is just above 16 percent, according to CreditCards.com. So, if you have a $5,000 balance and pay $125 a month, it would take 58 months to be rid of your debt and you would pay more than $2,100 in interest.
CreditCards.com recently surveyed 100 credit cards for their balance-transfer offers and found that 38 offer zero percent interest and 41 offer lower-than-average rates. For all deals, the typical introductory period is 12 months, although the range is six months to 21 months.
Consumer debt keeps climbing
| Category | Quarterly change (from Q2 2017) | Annual change (from Q3 2016) | Total as of Q3 2017 |
|---|---|---|---|
| Mortgage debt | (+) $52 billion | (+) $393 billion | $8.74 trillion |
| Home equity line of credit | (-) $4 billion | (-) $24 billion | $448 billion |
| Student loan debt | (+) $13 billion | (+) $78 billion | $1.36 trillion |
| Auto loan debt | (+) $23 billion | (+) $78 billion | $1.21 trillion |
| Credit card debt | (+) $24 billion | (+) $61 billion | $808 billion |
| Total debt | (+) $116 billion | (+) $605 billion | $12.96 trillion |
Source: Federal Reserve Bank of New York
These deals usually are available only to those with good or excellent credit. Good credit generally starts at about a score of 670 on a scale of 300 to 850. Excellent credit starts at around 740.
Although you might be able to find an offer with no balance-transfer fee, most of the deals charge the greater of either a fee ($5 or $10) or a percentage (3 percent to 5 percent of the balance).
"Depending on how much you're transferring, that fee can be a significant amount of money," Schulz said. "It's not necessarily enough to make the deal a bad one, but people should take note of it."
Also make sure the future interest rate on the card is palatable. If you have a balance remaining at the end of the introductory period, you might face a higher-than-average interest rate. The survey shows the average rate after that initial period is 19.33 percent, up from 18.45 at the start of 2017.
"A lot of people don't pay off the balance in full during the introduction, so it's important for people to know what rate they'll pay after that period ends," Schulz said.
Another key part of making the balance-transfer strategy work is to avoid racking up new debt on the cards whose balances were just moved.
"Balance-transfer cards are great, but if you just see that [freed-up] credit as more money that you can spend, that does you no good in paying down debt," Schulz said.
Also be aware of any deadlines that come with the offer. If you are given 60 days to get the introductory rate on transfers, make sure you don't miss that window.
Balance-transfer cards are great, but if you just see that ... credit as more money that you can spend, that does you no good in paying down debt.Matt SchulzSenior industry analyst for CreditCards.com
Schulz also said many consumers don't realize that if the deal does come with a low rate (versus zero percent), interest begins accumulating as soon as the transfer is complete.
"There is no grace period," he said. "The amount you pay might not break the bank, but it's important to understand what you're getting into so there are no surprises."
It's also important to make your payments. If you become delinquent, the bank could revoke its offer and charge you its standard interest rate.
The way to get the most out of the introductory rate is to pay off as much of your balance as possible during that time. Determine how much you can afford each month in advance and then set up automatic payments from your bank account. That way, you'll reduce the chance of veering from your plan to pay down your debt.
"Auto-pay is a credit card holder's best friend," Schulz said. "It takes a lot of the worry and decision-making out of your hands every month."
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