Longer balance transfer offer or shorter offer with rewards: which is better?

Whenever you are considering a new credit card, chances are you have a very specific goal for your finances. Sometimes he can earn a generous welcome bonus. Other times it may be an introductory APR offer with little or no interest or accumulating credit card rewards.

If you’ve ever compared a reward card with a short 0% APR period to a card without a reward and a longer balance transfer period, you might be wondering which is better. On the one hand, you can earn some pretty generous rewards, especially if the card offers a welcome bonus and ongoing opportunities to earn money.

If the perks and perks of the card are added, like cell phone protection or travel insurance, it can sweeten the pot. However, if you are facing high interest debt, a longer balance transfer offer could save you hundreds or even thousands of dollars over time.

In this article, we’ll look at different scenarios that justify a balance transfer card with a 0% longer APR offer versus a rewards card with a shorter card, along with the pros and cons of each type of card. .

What is the difference between a balance transfer and a loyalty card?

Balance Transfer Credit Cards

The main feature of a balance transfer card is that it offers little or no interest on purchases, balance transfers, or both for a limited time. In most cases, the introductory rate is 0% for a term of between six months and 18 months, although some cards now offer up to 21 months at 0% APR.

If you have debt on a credit card with a higher interest rate, being able to transfer the balance to another card with 0% APR means you can save a substantial amount of money on interest.

For example, if you had a credit card balance of $ 5,000 with an 18% APR and a minimum monthly payment of $ 125, you would pay $ 6,923.12 in interest over 20 years.

However, if you could transfer that $ 5,000 balance to a card with a 0 percent APR offer for 6 months, you would pay a balance transfer fee of $ 150 (assuming the standard 3 percent transfer fee. ). And if you kept your minimum payments the same, you would only pay $ 1,467.31 in interest and fees, a savings of $ 5,456.

As you can see, a balance transfer offer can be very useful when trying to deal with high interest debt. But, in most cases, these cards will have little rewards and benefits.

Rewards credit cards

A rewards card offers a certain type of reward depending on how you use it. In many cases, you can earn rewards with a welcome bonus, which usually requires you to spend a certain amount of money on the card within a specific period of time. Then you may be able to earn ongoing rewards in the form of cash back, points, or miles. Many credit cards these days offer both rewards and a welcome bonus.

For the most part, rewards cards are not designed to help you pay off high interest debt, but rather to maximize income on current expenses. But in some cases, you can find both rewards and a 0% introductory offer on the same card. .

For example, cards like the Chase Freedom Flex℠, Citi Custom Cash℠ card, and Bank of America® Customized Cash Rewards credit card offer a welcome bonus, ongoing rewards, and introductory APRs. On the other hand, these introductory periods tend to be much shorter than those of specially designed cards.

In addition to rewards, some cards offer perks and perks that can be of great value. For example, the Platinum Card® from American Express offers up to $ 1,400 in credits on various statements that include a comprehensive list of card benefits, such as:

  • Application fee credit up to $ 100 for Global Entry or TSA PreCheck (every four years)
  • Up to $ 179 in Clear Membership Statement Credits when paying with your card (annually)
  • Up to $ 200 in Airfare Credits (annually) for incidental charges with a selected airline
  • Up to $ 200 in credit for prepaid hotel reservations at Fine Hotels + Resorts or The Hotel Collection via American Express Travel (annually)
  • Up to $ 200 in Uber Cash for groceries and delivery ($ 15 per month, plus an additional $ 20 in December, available only to base cardholders)
  • Up to $ 240 annually in digital entertainment credits (up to $ 20 in total statement credits per month) for Peacock, Audible, SiriusXM and The New York Times subscriptions (registration required)
  • Up to $ 300 Equinox Fitness Membership Credits per year (up to $ 25 per month) for club or digital membership fees, including Equinox All Access, Destination, E by Equinox, or Equinox + (registration required)
  • Up to $ 100 for Saks Fifth Avenue purchases per year ($ 50 from January to June and $ 50 from July to December)
  • $ 100 credit on qualifying hotel purchases (for more than two consecutive nights with a The Hotel Collection brand)
  • Up to $ 155 (plus applicable taxes) per year in monthly Walmart + subscription credits ($ 12.95 plus applicable taxes), available each month, your monthly Walmart + subscription is paid for with your card
  • $ 300 credit for each qualifying SoulCycle At-Home bike purchase using your card via the link provided by Amex

Now, that’s probably one of the most extreme examples of card perks, but it’s here to show you that the right rewards card can bring a lot of value to the table. This is something to keep in mind when evaluating your credit card rewards and balance transfer options.

Should I choose a Balance Transfer Card or a Rewards Card?

It all depends on your current financial goals. If you are paying higher interest on a credit card, your main priority should be to pay off that balance and minimize the interest you pay. Often times, interest charges are unnecessary costs that will eat away at the net rewards or benefits of your credit card.

For example, if you earn $ 600 in combined rewards from a credit card welcome bonus, current rewards, and credits in a given year, but end up paying $ 800 in interest charges. on that same credit card, you basically lost $ 200. Ideally, you would use the perks and rewards of the credit card but not carry a balance in order to avoid interest and fees.

However, there are times when it makes sense to reap the rewards, especially if you have a fondness for travel. For example, premium travel credit cards like the Chase Sapphire Reserve® or the Citi Prestige® card can offer generous rewards when you redeem them for travel-related expenses. You can also earn more rewards on travel expenses with these types of cards. While they usually come with a high annual fee, if used correctly, you can justify these fees and maximize long-term value.

But does it make sense to go for a rewards card with a 0% shorter APR offer or a longer unrewarded balance transfer offer?

Let’s compare what you stand to gain under the two scenarios. Here we will be looking at two credit cards with balance transfer offers from the same issuer. Wells Fargo Reflect℠ offers no rewards but has 0% APR up to 21 months, while Wells Fargo Active Cash℠ offers 2% cash back on all purchases and 0% APR up to 21 months. ‘at 15 months. Neither card has an annual fee.

Suppose you have another card with a balance of $ 5,000, an APR of 18%, and a minimum payment of $ 125 per month. If you do nothing and keep making minimum payments on this card, it will take 22 years and 8 months to pay off, and the amount of interest paid during that time would be $ 6,923.12, more than double of your original balance!

However, if you transfer that balance to the Wells Fargo Reflect card for the 21 month period at 0% APR, it would only take 43 months to pay off with a total of $ 503.26 in interest and fees (including 3 percent balance transfer).

With the Wells Fargo Active Cash card, you would pay $ 794.84 in interest and fees and pay off the balance in 46 months.

(Note: In both scenarios, we assume that your APR after the 0% introductory period would be 14.99%).

Reward rate N / A 2% on all purchases
Welcome offer N / A $ 200 cash bonus after spending $ 1,000 on purchases in the first three months
Annual subscription $ 0 $ 0
APR introduction balance transfer 0% introductory APR for 15 months from account opening on eligible balance transfers; 12.99% -24.99% variable thereafter 0% introductory APR up to 21 months from the opening of the account on the eligible balance; transfers; 14.99% to 24.99% variable thereafter
APR purchase intro 0% introductory APR up to 21 months after opening the account; 12.99% -24.99% variable thereafter 0% for 15 months; 14.99% to 24.99% variable thereafter
Potential interest savings on a $ 5,000 balance transfer $ 6,420 $ 6,128

The advantage here is that while the Reflect card saves you more interest, Active Cash gives you the opportunity to earn 2% cash back on any new expense. Assuming you can afford all of the new fees on the card on top of your minimum payments, this cash back can make up the difference.

Still, if adding new purchases to your card will only increase your balance beyond what you can repay (on top of current debt), the rewards are nil.

Overall, we think those with a high balance to pay off are probably better off sticking with a longer balance transfer period. You’ll save more in interest in the long run and avoid the temptation to take on more debt.

That said, some people might be able to balance both paying off debt and new purchases while paying off their new balance in full. If so, you might as well earn rewards on those expenses.

The bottom line

At first glance, it may seem that a longer balance transfer offer might be the way to go. However, when you factor in a welcome bonus, ongoing rewards, and a balance transfer period (although slightly shorter), you can get more value from the rewards cards with all of these features, but only if you can fully pay for your new purchases. while continuing to repay your debts.

In either case, weigh the pros and cons of each card, then choose the one that’s right for you. If you ever need help figuring out the numbers for your credit card options, check out Bankrate’s financial calculators to help you choose the best credit card option based on real numbers and your specific financial situation.

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