Why Balance Transfer Checks Should Go Straight to Your Shredder
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.
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.
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.
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.