Transferring outstanding debt from one credit card to another, usually, a new one is a balance transfer. Consumers often use credit card balance transfers who want to transfer what they owe to a credit card with a much lower promotional interest rate and better benefits, such as a rewards program to earn cash or points for spending newspapers.
Consumers who want to save money by switching from a credit card with high-interest debt often use another credit card with a lower interest rate.
- Balance transfer credit card offers generally come with an initial interest-free period of between six and 18 months, although some are longer.
- Many credit transfers involve transfer fees and other conditions.
- Any breach of the cardholder agreement may void the initial APR and impose penalty fees.
What is a balance transfer credit card?
Many credit card companies forgo balance transfer fees (usually between 3% and 5% of the transfer amount) to attract cardholders. Oftentimes, they can offer a promotional or initial period of between six and about 18 months in which no interest is charged on the transfer amount.
The challenge: transferring balance means having a monthly balance, and having a monthly balance (even one with a 0% interest rate) means that payments on time are at least the minimum due on the transfer and any new purchases. Otherwise, you could lose the initial credit card APR on your transfer balances, as well as the grace period, and incur new interest charges (and possible penalty APRs) on new purchases.
How do credit card balance transfers work?
After approving your card with a 0% interest balance transfer offer, find out if the 0% rate is automatic or based on a credit check. The next step is to determine which balances to transfer; cards with high-interest rates should come first. (The balance does not have to be in the cardholder’s name to qualify for a transfer.)
Then calculate the transfer fee, which is generally 3% to 5% ($ 30 to $ 50 for every $ 1,000 transferred). Is there a limit on the fee? Otherwise, it is worth moving larger balances. Also, check the credit limit on your new card before you start transferring. The requested balance transfer cannot exceed the available credit line, and the balance transfer charges are approaching that limit.
- Apply for a card with a 0% APR starting offer on balance transfers or use an offer on a card you already have. To qualify for the best offers, you generally need to have good or excellent credit (generally FICO scores of at least 690). One thing to note: transfers from the same issuer are not normally allowed. For example, if you want to transfer a balance from one Citi card, you cannot transfer it to another Citi card.
- Start the balance transfer. If you do this online or over the phone, you will need to provide information about the debt you are trying to transfer, such as the issuer’s name, the amount owed, and account information. Sometimes balance transfers can also be initiated by convenience checks, or the issuers mail you the checks. However, before using one, read the terms to find out if it will be a balance transfer and what your interest rate will be.
- Wait for the transfer to complete. Once the balance transfer has been approved, which can take two weeks or more, the issuer will generally pay your old account directly. That old balance, plus the balance transfer fee, will show up on your new account.
- Pay the balance. When that balance is added to the new card, you will be responsible for making the monthly payments to that account. And if you pay it during the initial 0% APR period, for example, you could save a measure.
Why You Should Use?
If you can pay off a balance in three months or sooner, or you can’t qualify for a good 0% APR offer, paying off your debt as quickly as possible might be the best and most profitable option. And if you want a higher limit and don’t mind paying some interest, a personal loan might be a good option; You can pre-qualify for one to see how much you can borrow and what interest rate you could get before accepting an offer.
But overall, a balance transfer is the most valuable option if you need months to pay off high-interest debt and have good enough credit to qualify for a card with a 0% introductory APR on balance transfers. Such a card could save you a lot of interest, giving you an advantage when it comes to paying off your balances.