Recession prep: Should you apply for a balance transfer card now?

Holly D. Johnson | (TNS)

While rising rates of interest have been a boon for savers who are actually incomes upwards of 5% with high-yield financial savings accounts and certificates of deposit (CDs), rising charges on mortgage merchandise have traditionally performed a task in slowing the financial system down. But with latest charge will increase from the Fed, most of us are beginning to surprise the place rates of interest will go from right here — and if a recession could possibly be on the horizon within the coming months.

Unfortunately, an financial slowdown might affect people who find themselves already fighting bank card debt at in the present day’s exceptionally excessive charges. According to latest knowledge, the common rate of interest charged on bank card accounts was 20.71% as of Sept. 20, 2023.

Credit professional John Ulzheimer, previously at FICO and Equifax, says he believes banks and bank card issuers are higher at predicting recessions and difficult financial instances than economists. Further, it’s not unusual for banks to “clean up” their portfolios previous to financial downturns by decreasing the bounds on underperforming cardholder accounts and shutting inactive accounts.

Does making use of for a steadiness switch card now make sense?

With that in thoughts, it might make sense to go forward and attempt to consolidate high-interest bank card debt now — earlier than a recession slows the financial system down and collectors have the possibility to tighten their necessities. After all, there are a number of high steadiness switch bank cards obtainable in the present day that provide prolonged 0% intro APR timelines and only a few charges or no charges.

By making use of now and consolidating high-interest bank card debt when you can, you’ve got the potential to save cash on curiosity, pay down debt extra shortly or each. Just do not forget that you’ll must have a plan to pay down debt with a steadiness switch, or else you possibly can find yourself with much more debt ultimately.

For instance, Ulzheimer says you’ll get probably the most out of a steadiness switch bank card in case you use it for the supposed objective, which is to purchase your self a while at a 0% intro APR so you’ll be able to pay the cardboard off in full.

What to search for in a steadiness switch card

As you evaluate steadiness switch bank cards, you’ll wish to search for choices that allow you to consolidate and pay down debt with the bottom prices potential. In the meantime, you’ll be able to look out for options and advantages you would possibly truly use.

Here’s the whole lot you need to attempt to discover in your subsequent steadiness switch card:

—Lengthy intro supply. First off, Ulzheimer says you need to all the time search for the longest introductory APR supply you will discover. For instance, you could possibly discover steadiness switch playing cards that provide a 0% intro APR on steadiness transfers for as much as 21 months.

—No annual payment. The finest steadiness switch bank cards additionally include no annual payment, so ensure the playing cards you’re contemplating don’t include any mounted annual expenses you’ll be able to’t keep away from.

—Low steadiness switch payment. While most steadiness switch bank cards cost a steadiness switch payment on the quantity of debt you switch, this payment is often 3% or 5% of every steadiness transferred. Obviously, you’ll wish to search for steadiness switch playing cards with the bottom steadiness switch charges you will discover to maximise your financial savings.

While all of the attributes above are good to search for in a steadiness switch card, you’ll additionally discover that some playing cards with 0% intro APR gives include rewards. While incomes money again or rewards factors will be enticing, understand that you’ll have a a lot tougher time getting out of debt in case you’re nonetheless utilizing bank cards for purchases.

If you actually wish to maximize a steadiness switch bank card, skip over choices that provide rewards, cease utilizing bank cards for purchases in the meanwhile and deal with working towards freedom from debt as an alternative. If you’re totally debt-free sooner or later, you’ll be able to all the time rethink getting a rewards bank card at that time.

Balance switch playing cards to think about

As you look over the finest steadiness switch bank cards, contemplate these choices with a few of the longest intro APR gives available on the market in the present day:

Citi Simplicity Card

The no-annual-fee Citi Simplicity® Card comes with a 0% intro APR on steadiness transfers for 21 months from account opening and on purchases for 12 months from account opening, with each gives adopted by a variable APR of 19.24% to 29.99%. Note that solely steadiness transfers made within the first 4 months of account opening qualify for the introductory supply and {that a} 3% (minimal $5) intro steadiness switch payment applies in case you switch debt to the cardboard inside 4 months of account opening.

Wells Fargo Reflect Card

The Wells Fargo Reflect® Card comes with a 0% intro APR on purchases and qualifying steadiness transfers for 21 months from account opening, adopted by a variable APR of 18.24%, 24.74% or 29.99%. Only steadiness transfers made inside 120 days of account opening qualify for the introductory supply, and this supply comes with a 5% (minimal $5) steadiness switch payment. Further, there’s no annual payment.

BankAmericard bank card

The BankAmericard® bank card is one other nice card for debt consolidation because it comes with a 0% intro APR for 18 billing cycles on each qualifying steadiness transfers (made within the first 60 days of account opening) and purchases. Then, a variable APR of 16.24% to 26.24% applies. There’s no annual payment, and a 3% steadiness switch payment applies.

The details about the BankAmericard® bank card was final up to date on Sept. 20, 2023.

The backside line

Whether a recession is coming or not, consolidating debt with a steadiness switch card could make sense. With a high steadiness switch card, you may get a 0% intro APR supply for 18 and even 21 months, letting you pay down debt sooner since curiosity expenses received’t accrue your entire time. A steadiness switch payment is required usually and is added to your complete steadiness, however the curiosity financial savings you get will be effectively price it.

For extra perception into how a lot it can save you, contemplate attempting out our steadiness switch calculator, then make your resolution from there.

*The details about the Citi Simplicity® Card and BankAmericard® bank card has been collected independently by The card particulars haven’t been reviewed or authorized by the cardboard issuer.

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