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Update: Some offers mentioned below are no longer available – The Amex EveryDay® Preferred Credit Card from American Express, Barclaycard Arrival Plus World Elite Mastercard, Citi Diamond Preferred Card, Citi Simplicity Card, Discover it® Cash Back
Credit is an important tool; a sound financial standing can not only get you lower rates for mortgages and other loans, it can also help get you approved for the best rewards credit cards. Today, TPG Senior Points & Miles Correspondent Jason Steele offers tips on how to use balance transfers to manage your credit so you can get in on the top offers.
Here’s a statistic that you don’t often hear when talking about travel rewards credit cards: According to the most recent Gallup Poll on credit card use, about half of all American users carry a balance on their cards at least some of the time. While these numbers have declined over the last ten years, still about one third of credit card users say they carry a credit card balance every month.
Travel rewards credit cards can be incredibly lucrative, but the value you get from them disappears quickly if you’re carrying a balance with a high interest rate. Excessive debt can damage your credit score and keep you from taking advantage of the best credit card bonuses, and a lot of would-be award travelers are sitting on the sidelines of the points and miles game because they’re not sure how to get out from under their existing balances.
Today I’ll explain how you can fight fire with fire by using credit cards that can actually help reduce your debt, along with some that can even earn travel rewards along the way.
Credit cards that help you get out of debt
Since credit card debt is unsecured, it has a higher interest rate than a typical mortgage or car loan, and it’s never tax deductible. So if you’re constantly paying interest charges on your credit card balance, then your first priority should be to pay off that debt and avoid future interest charges.
If you (or someone you know) has used a credit card to get into debt, then it may also be possible to use a credit card to get out of debt. The key is to open an account that offers 0% APR balance transfers. These offers are kind of like welcome bonuses, in that they extend valuable benefits to new applicants, but instead of (or occasionally in addition to) earning points or miles, you receive interest-free financing on any balance you transfer to the new account. In addition, most of these offers also feature 0% APR financing on new purchases.
However, to really take advantage of a promotional financing offer, you have to combine it with a sound plan to pay off your debt. This should involve reducing your expenditures, maximizing your income, and making regular payments toward the principal balance. So long as the 0% APR is in effect, you won’t pay any interest charges, allowing you to save money while eliminating your debt sooner.
By law, these balance transfer offers with promotional financing must be valid for at least six months, and the top offers currently available can extend for as long as 18 months. The vast majority of balance transfer offers include a balance transfer fee (generally around 3% of the amount transferred) that gets added to the new balance. Yet this fee is far less than the cost of interest that would otherwise be paid over the course of the promotional financing offer.
Travel rewards and financing offers
For most people with credit card debt, trying to earn rewards while paying down the balance isn’t the best strategy. Rewards credit cards invariably have higher interest rates than similar non-rewards cards, and cardholders who are struggling with debt are the last people who need a rewards card that gives them an incentive to spend more money.
Nevertheless, some cardholders feel that so long as they’re paying down their debt and temporarily avoiding interest, then they can safely earn rewards on their spending. If you do get a rewards card with a 0% APR offer, keep in mind that you won’t earn points, miles, or cash back rewards on the amount of the balance transfer or any balance transfer fees. Occasionally, some card issuers offer a welcome bonus on the amount transferred, but that’s not the case with any current offers.
The most competitive balance transfer offers currently available
These offers vary in the terms and benefits offered, but all of them feature a 0% APR on balance transfers that can help you consolidate other credit card debt.
For several years now, Slate has been the only card offered with 0% APR promotional financing on balance transfers, that also comes with no fee for balance transfers within 60 days of account opening. New applicants receive 15 months of interest free financing on balance transfers and new purchases, (after that variable APR 16.74%–25.49% applies) and there’s no annual fee. Beyond the first 60 days, there is a 3% balance transfer fee.
While Slate doesn’t offer any rewards, it’s my top choice among the cards on this list, as any rewards offered by other cards are unlikely to be worth the customary 3% balance transfer fee. Note that Chase (like other card issuers) will not accept balance transfers from cards that it issues. So if you have debt on one or more Chase cards, you’ll have to find another bank that offers a promotional balance transfer.
Citi Diamond Preferred and Simplicity
These two Citi cards offer 21 months of interest free financing on both new purchases and balance transfers, with a 3% balance transfer fee ($5 or 3% of the amount of each transfer, whichever is greater). Citi Simplicity offers 0% Intro APR on Balance Transfers and Purchases for 21 months. After that, the variable APR will be 15.24% – 25.24% based on your creditworthiness. Citi Diamond Preferred offers 0% Intro APR on Balance Transfers and Purchases for 21 months. After that, the APR will be 14.24%-24.24% based upon your creditworthiness. Simplicity features no late fees or penalty interest rate, while Diamond Preferred offers free access to FICO scores, several purchase protection and travel insurance policies often found on rewards cards. Neither card offers rewards, but both have no annual fee.
This card comes in two flavors. One features 18 months of interest free financing on balance transfers, and six months of 0% APR financing on new purchases, (after that variable APR 13.49% to 24.49% applies) while the other offer has 14 months on both. There’s no annual fee for this card, but there is a 3% balance transfer fee.
The Discover it card is also a rewards card that earns 1% cash back on all purchases, and 5% cash back on up to $1,500 spent each quarter at select merchants. For the first quarter of 2015 (January, February, and March), the bonus categories are gas and ground transportation (such as rental cars, buses, taxis, and trains). You also get access to the ShopDiscover online shopping portal, which offers 5-20% cash back at over 200 retailers. Enroll every quarter to earn 5% cash back on up to $1,500 in purchases made in various categories throughout the year.
See TPG’s review of this card from last year for more information.
Freedom offers 15 months of interest free financing on both new purchases and balance transfers, (after that variable APR 16.49% to 25.24% applies) with a 3% balance transfer fee. New cardholders also receive a $150 sign-up bonus in the form of 15,000 Ultimate Rewards points after spending $500 within three months of opening an account. If you also have the Sapphire Preferred or Ink Plus, then points earned on the Freedom card can be transferred to airline and hotel partners.
Like the Discover it card, Freedom features 1% cash back on all purchases, and 5% cash back on up to $1,500 spent each quarter at select merchants. View the current bonus categories for 2016 here.
Amex EveryDay® Credit Card from American Express and Everyday Preferred
These are solid travel rewards cards and the Amex EveryDay card also offers 15 months of interest-free financing on both new purchases and balance transfers, (after that variable APR 14.74% to 25.74% applies) with no balance transfer fee. The standard, no-fee Everyday card offers a welcome bonus of 10,000 Membership Rewards points after spending $1,000 within three months of account opening. You’ll earn double points at US supermarkets on up to $6,000 spent each year (1X thereafter), plus a 20% points bonus when you use your card to make at least 20 transactions per statement period.
The Everyday Preferred version has an annual fee of $95, and offers a welcome bonus of 15,000 Membership Rewards points after spending $1,000 within three months of account opening. You’ll earn 3X points at US supermarkets on up to $6,000 per year in purchases (1X thereafter), and 2X points at US gas stations. In addition, you receive a 50% points bonus when you use their card to make at least 30 transactions per statement period.
See TPG’s introduction of both cards from last year for more info, and check out this comparison of Everyday Preferred and Chase Sapphire Preferred by TPG Special Contributor Eric Rosen.
Barclaycard Arrival and Barclaycard Arrival Plus World Elite Mastercard
These cards offer 0% Introductory APR for 12 months for each Balance Transfer made within 45 days of account opening. After that, a variable APR will apply, 16.99%, 20.99% or 23.99%, based on your creditworthiness. The standard Arrival card with no annual fee offers 20,000 bonus miles after spending $1,000 within 90 days of account opening. It earns double miles on travel and dining, and one mile per dollar spent on all other purchases.
The Arrival Plus offers 50,000 bonus miles after spending $3,000 within 90 days of account opening, and earns double miles on all purchases. The Arrival Plus has an $89 annual fee that is waived the first year. Barclaycard miles are worth one cent apiece as statement credits toward travel related expenses, and holders of both cards receive a 5% rebate on their miles redeemed.
See TPG’s review of the Arrival Plus from last year.
For more info, check out these posts:
- Credit Cards that Offer Free Credit Scores
- How Credit Card Applications Affect Your Credit Score
- How Can I Save My Score After a Late Payment?
It's a stellar cash back card on its own, but when paired with the Chase Sapphire Reserve or Chase Sapphire Preferred, the Freedom's 5x Category Bonuses let you rack up Chase Ultimate Rewards Points, transferrable to partners or redeemable via the portal.
- 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 16.74-25.49%. Balance transfer fee is 5% of the amount transferred, $5 minimum
- Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening
- Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate
- Enjoy new 5% categories each quarter
- Unlimited 1% cash back on all other purchases - it's automatic
- Cash Back rewards do not expire as long as your account is open and there is no minimum to redeem for cash back.
- Free credit score, updated weekly with Credit Journey℠
- No annual fee