Understanding Balance Transfer Credit Cards
What is a Credit Card Balance Transfer?
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If youâ€™ve recently gotten a low-rate balance transfer offer from a credit card company, you may be asking yourself, â€śIs this something that will benefit me?â€ť
A credit card balance transfer can be a great way to save some money. There are also some other benefits that come with consolidating your debts into just one payment.
If you have a high balance on a store credit card with a 21% APR, for instance, you may be able to transfer that debt to a credit card with a lower rate, saving you money on interestâ€”and possibly helping you pay down your debt faster.
First off, what exactly is a balance transfer?
A balance transfer is when you pay off the balances on existing cards or loans by transferring them to another credit card account. (In some cases, you may be charged a fee to complete the balance transferâ€”typically a percentage of the transfer balance. More about that later.)
You can only transfer an amount up to your credit limit on the new card. So if your credit limit is $5,000 on the new card and you want to transfer a balance of $6,000, you will only be able to transfer up to $5,000 (including any balance transfer fee) of that existing balance.
Whatâ€™s the balance transfer process?
â€˘Â When you respond to a balance transfer offer, youâ€™ll indicate who you want to pay, the account numbers, and how much.
â€˘Â Once youâ€™re approved for the balance transfer, the credit card company contacts your creditors or billers on your behalf and pays them the amount you indicated. It can take up to two weeks for this process (but is usually around 7 days).
â€˘Â If you have any payments due before that time, youâ€™ll want to go ahead and make those payments by their due dates to avoid late fees.
What are balance transfer fees?
Credit card balance transfers may charge a balance transfer feeâ€”usually 3% to 5% of transferred debt. You may be able to find a 0% intro balance transfer rate with no balance transfer fee for a limited period.
How can a balance transfer offer help?
â€˘Â A low balance transfer APR can help you catch up on your existing debt. That’s because you can get a low promo or introductory APR to pay down that balance for a defined time frame, like 12 months.
â€˘Â A low promo or introductory APR may also help cut the time it takes to reduce your debt. When you pay high APRs, a lot of your payment goes to the interest rather than paying down the principal balance itself.
â€˘Â Finally, instead of paying multiple creditors on multiple due dates, consolidating all of your balances onto one card with a low or 0% promo or introductory balance transfer APR means you have to keep track of one payment a monthâ€”and not multiple cards with multiple due dates.
What types of balances can I transfer?
You can transfer balances such as store credit cards, gas cards and other credit cards. Just remember, when you are approved for a credit card you will be given a certain limit and you can only transfer up to that amount – be sure to account for any balance transfer fees. The typical balance transfer fee in 2015 was 3%.1
Pay Off Debt Faster with a Balance Transfer.
The different types of balance transfer rates
Intro APR balance transfer offers. The best balance transfer rates are usually offered by credit card companies to new cardmembers, and usually are 0% or low APR offers for an introductory time period.
Credit card companies offer incentivesâ€”like a low interest rate on purchases and balance transfersâ€”to encourage you to transfer your business to them, and hopefully establish a long-lasting relationship.Â
When transferring your credit card balance, it is important to remember that this intro rate is temporary. The duration usually varies from 6 to 18 months and will be specified in the offer.
Balance transfer offers are sometimes available on existing credit card account(s) with promotional APRs which also apply for a defined time period. Contact your credit card company for more details.
Standard balance transfer rates
Youâ€™ll pay a regular rate, or a standard purchase APR, on balance transfers when:Â
â€˘Â Your introductory or promotional time period expires. After this period, the remaining transferred balance is generally subject to the standard purchase APR for the card.Â
â€˘Â If you want to make a balance transfer to an existing card and donâ€™t have a promotional balance transfer offer, you may be able to pay the standard APR for balance transfers as disclosed in your Cardmember Agreement.
Things to keep in mind.
â€˘Â Your credit score takes into consideration your credit utilization. You donâ€™t want to max out a card, since this will affect your debt-to-credit ratio.
â€˘Â Avoid â€śchasingâ€ť 0% balance transfer offersâ€”or bouncing balances from one card to another. Consider finding a great balance transfer offer and making a plan to pay down the debt once and for all.
â€˘Â Determine whether the Intro APR offer applies only to the balance transfers, regular purchases, or both. Check to see if there is an introductory balance transfer fee as well.
â€˘Â Balance transfers by themselves do not automatically close an account. If you want to close a credit card account after you transfer the balance from it,Â you need to contact the creditor to do so.