5 Criteria to Consider When Shopping Around for a Balance Transfer Credit Card

If you're thinking about consolidating your outstanding credit card debt by transferring your high rate balances to a low rate credit card, make sure you take into account the following criteria in your selection process:

1. Promotional Rate: Whether it's 0%, 1.99%, the rate is only one of many factors to consider when choosing a balance transfer credit card.
   
2. Promotional Period: On the short end, it can be 6 months and on the long end as much as 21 months or more. Make sure you know when the promotional period expires down to the exact day. If a promotional offer says "Through April 2012" it means that the promotional rate is valid until the close of your billing cycle in the month of April 2012. Make sure you know when your billing cycles begin and end each month.
3. Balance Transfer Fee: Even if a card is offering you a 0% promotional rate, it will cost you money to transfer your high rate balance. On average the balance transfer fee is 3%-4% though there are cards with lower and higher rates. Make sure you know the answer to this question (it should be in the promotional literature but you can call the credit card company to ask directly). If you're looking to transfer $10,000 to a card which charges a 3% transfer fee, then you will be charged $300 just for making the transfer.
4. Annual Fee: Some cards charge an annual fee and some don't. Just make sure you know which group the credit card you happen to have your eye on fits into. If they do charge an annual fee, make sure you know the amount of the annual fee.
5. What happens after the promotional period expires? Your rate is going to change from a promotional rate to a standard rate. Make sure you know the standard rate. Also, make sure you know whether that rate is a fixed or variable rate. Usually in the case of a variable rate, the literature will provide specific information as to how the rate is calculated (prime rate plus some percentage). If you can't readily find the information, call the credit card company directly and make sure you know the answer.
   

There are numerous resources available on the internet so I encourage you to do your homework to find the option which is best suited to your needs. One resource which I find useful and which I recommend to my clients is Bankrate.com since you can further refine your search based on card type, credit score and issuer.

Some final thoughts about balance transfer credit cards:
1) As you would with any other credit card, make sure you pay your balance transfer credit card bills on time.
2) Be vigilant about your credit card usage as a whole while you're taking advantage of the balance transfer option. You want to pay as much as you can to the lowest rate card so that you can eliminate that debt the fastest. Keep a close eye on things to make sure that you don't drive up your other credit card balances. Once you pay off one credit card, keep up that same disciplined behavior with respect to your other credit cards until you've paid them all off successfully.

Cheat Sheet: Quickly Calculate How Long it Takes to Double Your Money

The process of getting a firm grasp on one's finances can be overwhelming, for sure, but there are numerous convenient tools that can be used to make quick calculations and one such tool is the Rule of 72.

The Rule of 72 is a mathematical shortcut which you can use to quickly calculate roughly how long it will take for your money to double (not taking into account inflation or taxes) assuming you start with a fixed amount of principal at a fixed annual interest rate and don't add a penny to it.

Here's how it works:

Say you have $500 in an account which is earning 3% and you want to know how long it would take for it to double. You'd divide 72 by the interest rate to get an approximation as to how many years it would take at your fixed annual interest rate before $500 became $1,000.

72 divided by 3 = 24 therefore it would take 24 years for $500 to become $1,000 (assuming no further additions to principal and a fixed annual interest rate of 3%).

You can also use the formula the other way around. Say you have a specific amount that you'd like to invest and want to calculate the annual interest rate required to double your money by a certain time horizon.

In this example if you're starting out with $10,000 and want it to double in 4 years., you'd divide 72 by the number of years to derive the interest rate.

72 divided by 4 = 18 so your principal investment of $10,000 would double in 4 years assuming you earned an 18% annual interest rate.

The Rule of 72 is a powerful tool for estimating the effect of any growth rate, not just those that are financially related. It can be a great addition to anyone's mathematical arsenal given its utility and ease of use, two characteristics which also can help to make the subject of math as well as financially related concepts in general a bit less intimidating and more approachable.