You've heard about the proliferation of rewards credit cards and have decided you should get one.
Smart. Rewards cards can be a good way to get a little money back with each purchase. But as you consider your choices, don't overlook a balance transfer card if you have a hefty balance on your current card. It could actually put more money in your pocket.
Here's why: let's suppose you get a cash back rewards card that pays 1.5% on every purchase. That's pretty generous as these rewards cards go.
If you spend an average of $1,000 a month on your card, you'll get $15 a month back. It's a nice little bonus and nothing to sneeze at.
How much are your current credit card payments?
But suppose your current credit card has a $10,000 balance and the interest rate is 16% APR. You're paying around $133 a month, just in interest. Suppose you could eliminate that for a few months?
Many balance transfer cards offer a year or more of a 0% introductory rate if you transfer a balance in the first two to three months. All that money you had been spending on interest is now yours.
Even if you don't use the cards for anything else – and you probably shouldn't as long as you're paying down a balance – you're coming out well ahead. You might be making the same credit card payment each month, but all of it is paying down the balance, when previously only a small portion paid principal and the rest went to the credit card company as interest payments.
Some balance transfer cards also have some attractive features. The Chase Slate Card, which offers 15 months of 0% interest on transferred balances, is one of the few cards that does not charge a 3% fee on the amount of a transferred balance – still more savings.
The Slate Card also lets you check your credit score for free each month and doesn't raise your rate if you're late on a payment.
The Citi Diamond Preferred is another attractive choice because it offers nearly two years – 21 months – of interest free payments, allowing you to stretch out your payments without paying interest.
The only downside is the 3% balance transfer fee. On a $10,000 balance that's $300. Still, it might be worth it when you measure it against savings in interest charges.
How about a card that provides 0% interest as well as cash back rewards? They do exist.
The BankAmericard Cash Rewards Card is one. It pays 3% cash back on gasoline, 2% on groceries and wholesale clubs, and 1% on everything else.
It's also a balance transfer card, with 0% interest for the first 12 months the card is active.
The point is, a card doesn't have to put money in your pocket to be rewarding. It can also be rewarding if it doesn't take so much out of your pocket.