Imagine this scenario: you have credit card debt (not too far fetched for most people) and despite your most fervent attempts, your principle balance isn't decreasing.
Making just the minimum payment will never pay off a credit card because the interest rates will be too high.
If you can't afford to pay more than the minimum, there is another alternative: a balance transfer card. By eliminating your interest rates, at least for a short time, you can work on paying off your balance.
The key is using a balance transfer card effectively; if you fail to take advantage of the low interest period, you'll end up in the same situation you were in before.
Balance Transfers: What You Need to Know
A balance transfer is the act of transferring all or part of an existing debt on one account (in our case, usually credit cards) to another account.
Balance transfer credit cards are cards designed wholly or in part for this purpose; these cards usually have no introductory APR for a set amount of time and little to no balance transfer fees. Cardholders can take advantage of this period of low APR to pay off their debt without the burden of interest payments.
There are a few things to keep an eye on when shopping around for a balance transfer card. First and most importantly, make sure you can transfer the balance for your existing lender to the potential card. Not all lenders allow balance transfers to others, and some do not allow internal balance transfers.
Next, keep an eye on the balance transfer fee. This is usually a percentage, often between 3% and 5%, of the amount transferred. Depending on your level of debt, this can add up to hundreds of dollars.
Many balance transfer cards have a period with no fees. If you settle on a card that charges fees, evaluate whether the amount you'll save on interest is worth the additional fee you pay when transferring your balance.
Finally, look at the promotional APR period. A good rule of thumb is the longer you can go without any interest, the better. While the standard 0% APR period is between 12 and 15 months, some cards have much longer introductory periods. The Citi Simplicity, for example, offers a 21-month period.
Why You Should Utilize Balance Transfers
Carrying a large balance on your cards can have a significant impact on your credit score, and this effect is farther reaching for young people. A low credit score can affect their ability to qualify for a mortgage or an auto loan.
The best credit card balance you can have is $0, but for most people, that's not feasible. A good target to shoot for is around 30% of your limit. This means that if you have a card with a $200 limit, you should carry no more than $60 in debt on that card.
Even if you can't transfer your entire balance to a new card, it may be possible to reduce your debt enough that the interest isn't overwhelming. It's far easier to pay interest on a $500 balance than a $1,500 balance.
Ultimately, your credit card balance should be something you can afford. Anytime you can afford to pay more than the minimum balance, you should. There are many ways that paying just the minimum balance can hurt you, and high interest rates are just one of them.
The advantage to using a balance transfer card is that you can bring your debt down to 30%. Here's an example:
Imagine you have a maxed-out card with a limit of $1,500. Even though you're making the minimum payments each month, the interest brings you back to near $1,500. To help manage this, you apply for a balance transfer card and are approved for another card with a $1,500 limit.
You transfer $500 from the first card to the second. This keeps you below a 30% utilization ratio on the second card while bringing down your overall debt on the first. Better yet, the second card is interest free, allowing you to pay it off more quickly—and then transfer more of your debt to it.
Are balance transfers normal?
Balance transfers are nothing out of the ordinary. In fact, credit card companies have used 0% APR introductory periods to entice customers for years. Many people take advantage of these periods to take large steps forward in their journey to financial freedom.
Many credit card companies allow you to search specifically for balance transfer cards on their website. That said, most balance transfer cards aren't strictly for that purpose; they are all-around credit cards that happen to have that as a perk. Some are just the best-suited credit card from that company for that purpose.
When you switch to a new credit card, it's not unusual to transfer any remaining balance you might have on an existing card, particularly if you plan to close that account. Most accounts cannot be closed with a balance, so transferring whatever you have to your new card not only frees you to do what you want with that card, but it makes it much easier to pay off whatever remains.
Most credit cards have an introductory APR associated with them, but this doesn't always apply to balance transfers. Sometimes this rate might be limited to purchases. Just because a card has an introductory rate doesn't make it a good choice for a transfer. Look at the fees and the length of this introductory period before making your decision.
Hidden Fees, Costs, and Expenses of Balance Transfers
Balance transfers are usually not free. That said, the cards we most recommend are those that not only carry a 0% APR introductory period, but those that charge no balance transfer fees during this time. Unfortunately Citi's best balance transfer cards all carry a fee of $5 or 3% of the transfer, whichever is greater.
If this fee discourages you, take a moment and figure out what it actually costs you. Making the minimum payments on a card with a $2,000 balance and a 25% interest rate will result in $487 extra per year. However, transferring that balance at a 3% rate only costs you an additional $60. In other words, you'll save $427 if you transfer your balance and pay it off.
As you'll see in the list of Citi cards below, many balance transfer cards double as reward cards. The Citi Double Cash and the Citi ThankYou Preferred Card are just two examples of reward cards that function as balance transfer cards, yielding points and/or cash back for purchases. Before you get too excited, keep in mind that transferring your balance to one of these does not generate any points. You'll need to make actual purchases to generate reward points or cash back.
Maximum Transfer Amounts
Depending on the issuer, a credit card may allow you to transfer 100% of your available credit limit, 95% of your limit, or lower. However, many balance transfer cards allow you to transfer the entire amount—up to the credit limit of your new card. Citi Bank generally allows you to transfer up to the limit of your new card.
Keep in mind, however, that balance transfer fees can quickly add up. If you transfer $5,000 with a 3% fee, that's an additional $150 you're responsible for paying off. It isn't much, but if you're struggling to reduce your debt, it can quickly add up.
Best Citi Bank Balance Transfer Cards
We have reviewed balance transfer cards from various companies, but Citi Bank stands apart with its offerings. Citi Bank has four cards that are great for balance transfers: the Citi Simplicity, the Citi Double Cash Card, the Citi Diamond Preferred Card, and the Citi ThankYou Preferred Card. We're going to break down the benefits of each one of these cards for you.
The Citi Simplicity is easily one of the most sought after and highly recommended cards from Citi Bank. It carries a number of benefits you should know about.
- The Citi Simplicity has no late fees, no penalty rates, and no annual fee.
- New cardholders receive a 21-month 0% balance transfer rate from the date of the first balance transfer completed within four months of opening the account.
- New cardholders receive a 21-month 0% purchase APR rate.
- Choose your own payment due date.
The Simplicity is not a rewards card. It is designed to help people reduce their credit card debt without penalizing them for their financial situation. In addition, there are other benefits that we find to be just as useful, including how easy it is to reach a real person on the phone—just say "representative" when you call. No need to navigate irritating audio menus.
If you make a purchase using your Simplicity card and find it for a lower price within 60 days, all you have to do is call customer service and show them a copy of your original receipt. Citi will refund you the difference.
All Citi cards come with identity theft protection, travel and emergency assistance, and worldwide car rental insurance. You'll also receive manufacturer's warranties when available, as well as $0 liability on any fraud that may occur.
Rates and Fees
The Simplicity has a standard APR between 14.49% and 24.49% based on your creditworthiness and the Prime Rate. This rate applies to both balance transfers and purchases. Once the 21-month introductory period is up, this rate will be applied to any outstanding balance.
There is also a foreign transaction fee of 3%, a cash advance fee of $10 or 5% (whichever is greater), and a balance transfer fee of $5 or 3%.
Citi Double Cash Card
The Citi Double Cash Card is one of the best cash back rewards cards Citi Bank has to offer. Here's how it can benefit you.
- You earn 1% cash back on purchases, and an additional 1% cash back when you pay off those purchases.
- There are no caps on your rewards.
- There is no annual fee.
- New cardholders receive 0% APR for 18 months on balance transfers.
The Citi Double Cash Card has a lesser 0% APR period for balance transfers than the Simplicity, but only by three months—and it comes with the added benefit of being a rewards card. As far as cash reward cards go, it's one of the best out there. 2% cash back total on all purchases (provided you pay off your balance) is nothing to sneeze at.
In addition to that, you get the price matching benefits, a free pass on your first late payment, and a host of other benefits. There is no introductory period on purchase APR, so the standard rate will apply immediately.
Rates and Fees
The Citi Double Cash has a standard rate of 14.49% to 24.49%, and a firm cash advance APR of 26.24%. If you miss a payment, the penalty APR is 29.99%. The foreign transaction fee is 3% of each transaction, while the cash advance fee is $10 or 5% of the advance. The balance transfer fee is $5 or 3% of the amount of each transfers, whichever is higher.
Citi Diamond Preferred Card
The Citi Diamond Preferred is a lot like the Simplicity in terms of functionality, but it has a few features that set it apart; namely, lower APR rates and more benefits.
- The Citi Diamond Preferred Card has no annual fee and lets you choose your own due date.
- New cardholders receive a 21-month 0% purchase APR and balance transfer APR, after which the rate increases to a lower standard of 13.49% to 23.49% based on your credit.
- This card comes with Citi's Price Rewind and the Citi Private Pass, allowing early purchase of tickets to select shows.
The Diamond Preferred Card is not a rewards credit card, but more like an upgraded version of the Simplicity. In addition to a lower rate, the Diamond Preferred Card comes with several other travel-oriented benefits, such as worldwide travel accident insurance and trip cancellation insurance. If you're in an accident overseas or you have to cancel your trip for some reason, you may be eligible for reimbursement if you made the purchase with your Citi card.
The Citi Price Rewind, car rental insurance, and fraud liability protection are also standard on this card. An interesting benefit is the damage & theft purchase protection; if you buy something and it is broken or stolen within 120 days, you may be able to receive repairs or a reimbursement at no cost to you.
Rates and Fees
While the variable APR is lower for this card, the other rates remain consistent. The cash advance APR is a set 26.24%, while the variable penalty APR can be as high as 29.99%. Foreign transaction rates are 3%, and the cash advance fee is $10 or 5%. Balance transfer fees are $5 or 3%. Despite having lower rates and a long introductory period, there will still be a fee imposed on any balance transfer you might make.
Citi ThankYou Preferred Card
The Citi ThankYou Preferred Card is first and foremost a rewards card—and a very solid one at that. However, it can be used as a balance transfer card because of its introductory 0% APR period.
- New cardholders have 0% APR for 12 months on balance transfers and purchase.
- Cardholders receive 2x points on dining and entertainment and 1x points on everything else.
- Receive a one-time bonus of 15,000 points if you spend $1,000 within the first 3 months of opening the account.
- Your points never expire.
- You can choose your own due date.
As far as rewards cards go, the ThankYou Preferred Card is Citi Bank's answer to a travel rewards card. Points can be redeemed for TrueBlue points to get flights faster.
Cardholders also receive the Citi Price Rewind, Citi Private Pass, and the other benefits that are included with Citi Bank's higher-end credit cards. Keep in mind that balance transfers do not earn points.
This card also provides worldwide travel accident insurance, worldwide car rental insurance, and trip cancellation and interruption protection. Combine this with $0 liability for unauthorized charges and you have a card that is just as reliable overseas as it is at home.
The downside is that rewards cards require higher credit scores to qualify.
Rates and Fees
The Citi ThankYou Preferred Card has a variable APR of 14.49% to 24.49%, although this can vary with the Prime Rate. The cash advance APR is 26.24%, and the penalty APR is 29.99%. Cash advance fees are $10 or 5% of the amount, while balance transfer fees are $5 or 3%. Late and returned payments both carry penalty fees of up to $35.
Pros and Cons
Balance transfer cards have their upsides, but there are also a few drawbacks you should be aware of.
- Transferring a high balance can reduce the amount you pay in interest on a high-interest card and potentially allow you to get out of debt faster.
- You can consolidate your credit card debt into one low-interest payment.
- Some balance transfer cards double as reward cards.
- Balance transfer fees can add up quickly.
- If you don't qualify for the promotional balance transfer rates, your new interest rate may be higher than your existing one.
- Opening a new line of credit can hurt your credit score.
Check out how other customers have rated Citi's credit cards.
"Citi really takes an interest in their customers. I always get the feeling they are always there for me. They also offer increase limits on all my credit cards without having to be reminded provided, of course, I have properly maintained my accounts. They also offer checks you can use for certain periods of time with little or no interest."
- Texssfan, Citi ThankYou Preferred Card
"I never look at my statements but I did recently and found I was paying 23% interest on something. I was appalled since I have been a customer since 1987 - and when I called (the balance was only $2000 - they told me they couldn't change it but could offer me 0% for 6 months on future purchases. I took that offer, paid off the 2K - but will RARELY use this card again. American Express just can't be beat. You should take better care of your long term customers Citibank."
- KellyVV, Citi ThankYou Preferred Card
Most Common Complaints
The majority of Citi cards were highly rated—four stars out of five or higher. However, the most common complaints we encountered all focused on interest rates. Many customers are unhappy with the high interest rates Citi charges, so be aware of what your rate might build to before you commit to a card.
Choosing a Balance Transfer Card
If you've gotten this far in the article, you're likely in the market for a new credit card. Take a moment and make a financial inventory.
How much credit card debt do you have? Which cards have the highest interest rates? Which cards are you closest to paying off?
Paying off your lowest card might be tempting, but it can often be better to pay down your highest-interest card. It might be costing you hundreds or even thousands of dollars extra in interest each year.
Choosing the right credit card for your situation will help you reduce your overall debt and take another step toward being totally debt-free.
Citi has four great options for balance transfer cards, and the benefits that accompany these cards make them well worth considering.
Evaluate the balance transfer cards shown here, make a budget, and stick to it. Within a year or two, even if you still have some debt, your overall amount will be greatly decreased.