See allLatest Trade Alerts

Brokerage Partners

Why Balance Transfer Checks Should Go Straight to Your Shredder

Written by: TheStreet Guest Contributor 08/09/12 - 3:15 PM EDT
Tickers in this article: JPM C

The bottom line is that the balance transfer check you receive in the mail probably isn't the best balance transfer option available to you. Consider applying for a new credit card instead, and you could enjoy decreased transaction fees and longer 0% interest promotional periods.

To illustrate how this works, let's take a close look at three scenarios to see just how much more you could save by transferring a $10,000 balance from a high-interest credit card to the Slate from Chase card with no balance transfer fee.

  • Scenario A: Balance is left on current card at 15% interest

    • If you made $500 payments per month at an interest rate of 15%, it would still take you two years to pay off the entire balance. During that time, you would pay $1,579 in interest.

  • Scenario B: Balance is transferred using a typical balance transfer check

    • More Headlines

    Let's say the balance transfer check offers 0% interest for 8 months, a 3% balance transfer fee with no cap, and an ongoing APR of 15%. The balance transfer fee alone would cost you $300, but you could now pay off the debt in 22 months if you continued to make $500 monthly payments. When compared to scenario A, you would also save a total of $1,037 in interest, which means your total savings would be $737 including the balance transfer fee.

  • Scenario C: Balance is transferred to new Slate from Chase card within 60 days

    • If your ongoing APR were 16.99% (could be as low as 11.99%), $500 monthly payments would allow you to pay off the $10,000 balance in 21 months. In addition, you would only incur $112 in interest charges during that time, which means you would save $625 more than in scenario B. When compared to scenario A, your grand total in savings would be $1,467.

    While it may take a few extra minutes of your time to get approved for a new credit card, the additional effort will obviously be well worth it. As illustrated above, avoiding balance transfer fees and paying off high-interest debt over an extended 0% interest period could save hundreds, if not thousands of dollars.

    --By Joshua Heckathorn

    Heckathorn runs Creditnet.com, a free resource to help consumers learn more about credit and compare hundreds of the best credit cards online. He resides in Seattle and holds an MBA and B.S. in finance.