Simply put, a balance transfer is the process of moving a balance from one credit card to another. It can be a helpful tool when managing and paying down credit card debt as it takes advantage of 0% introductory offers, enabling you to put more money toward your principal. Of course, that doesn’t mean that there are no fees associated with a balance transfer. Instead, there will typically be a balance transfer fee of around three to five percent of the total balance transferred. Learn more about what is a balance transfer and how it works.
What is a Balance Transfer?
A balance transfer is a procedure by which you can transfer your credit card debt to another card. If you have a high-interest credit card, you can use a balance transfer to move your balance or some portion of it to a card with a lower interest rate or a 0% introductory APR.
During the initial transition period, you will not be charged interest if you move your balance to a card with a 0% introductory offer. However, there may be a fee as balance transfer fees may still apply–even if interest is not being charged. The average balance transfer fee is around three to five percent of the total balance transferred. This is why it’s important to carefully choose a credit card to transfer your debt. Find cards with long introductory interest-free periods and be familiar with the rate that will apply when that time has passed. It’s also important to understand what happens when the 0% intro period ends.
When applying for a balance transfer credit card, creating a plan to eliminate existing debt is crucial. While paying off a high-interest deficit, a balance transfer can assist you in preserving finances on interest fees. Before making a final decision, you should consider whether or not you can pay for the fees, the limitations, and the loan’s initial duration.
When a Balance Transfer Might Be Worth Considering?
- When you have high-interest debt: Consumers can benefit from shifting their balances to a credit card, offering a reduced interest rate to reduce their monthly interest payments.
- When consolidating multiple debts: If you have balances on many credit cards, a balance transfer may help you simplify your finances by combining your monthly payments into a single amount.
When a Balance Transfer Is Likely a Bad Idea?
- If you have a low credit score: If your credit score is insufficient, you may not have consented to a credit card that delivers a promotional APR of 0% for a fixed period. A balance transfer application may be futile or lead to expanded interest rates under these possibilities.
- If you have balance transfer fees: If the balance transfer costs are elevated, moving your balance might not be cost-effective, especially if your new card’s interest rate is not remarkably lower.
Pros and Cons of Balance Transfer
| Pros | Cons |
|---|---|
| Save money with a 0% introductory | There's typically a 3-5% balance transfer fee |
| Can help simplify debt management by consolidating debt | May lead to increased money mismanagement for those who are compelled to use the new card for other purposes |
| Lower interest rates let you pay off debt faster by contributing more to the principal | Some credit cards have debt transfer limits |
| Paying on time and reducing debt through a balance transfer will boost your credit score |
How Much Do Balance Transfers Cost?
The standard cost for transferring a balance is between 3 and 5 percent of the total amount transferred. So, if you want to transfer a $1,000 balance and your card has a 5% fee, you will be charged $50 to transfer that balance from one card to another.
Transferring a balance from a high-interest credit card to one with a 0% intro APR could help you save money. The transferred amount must be repaid in full before the conclusion of the promotional period. This makes timely preparation a key. The elevated reversion rate will be applied to the remaining deficit if the tab is not fully settled by the grace period’s end.
In many cases, this is higher than the promotional rate and can cancel out any savings from doing a balance transfer. Knowing the duration of the introductory period, the reversion APR and any other fees or restrictions is crucial before applying for a balance transfer credit card.
How Do Balance Transfers Work?
You can take advantage of a cheaper interest rate or a promotional 0% APR on purchases made with a new credit card. This can happen by transferring your outstanding debt to that card. This could aid you in getting out of debt faster and preserve money on interest. Let’s understand how balance transfers work with the help of a few important steps you should take.
1. Find a Balance Transfer Card
Choose a credit card with reasonable balance transfer fees and interest rates. Consider the promotional rate’s length, associated costs, and the reversion APR that will apply once the introductory period ends.
2. Apply for the Card
After deciding on a suitable balance transfer card. The next step is to apply. Be ready to submit a credit check and the sharing of personal information.
3. Transfer Your Balances
Once the balance transfer has been approved, it can be initiated. If you’re sending an application for a new credit card, the issuing bank will probably like to know how much deficit you already have on other cards.
4. Pay Attention to Fees
Transferring a balance usually costs between 3% to 5% in fees. Make sure to include these costs when calculating the possible interest savings from making the switch.
5. Make Timely Payments
Paying on time and staying clear of late fees or penalties is essential to getting the most out of your balance transfer. To prevent extra interest bills, the transferred credit must be settled before the end of the promotional duration.
6. Understand the Revert Apr
After the introductory period ends, your new card’s interest rates will change to the usual APR. You should remember this and make payments properly if you don’t want to see an increase in your interest rates.
7. Avoid Additional Debt
Avoid making new purchases on the transferred card until the promotional period ends. Paying off the transferred amount will help you get out of debt quicker.
Get the complete breakdown of how to transfer a balance.
What to Consider Before Doing a Balance Transfer?
Before committing to a balance transfer, the following things should be considered. Understanding the ramifications and potential expenses of a balance transfer is essential before deciding to use it as a strategy to manage credit card debt.
1. Interest Rate and Fees
Remember that balance transfer costs can amount to 3-5% of the transferred amount, even if the interest rate is low or promotional. Compare the transfer charges against the potential savings from switching interest rates.
2. Repayment Terms and Timeline
Understand the promotional period, when it ends, and the new interest rate. Determine if you can pay off the transferred balance within the promotional period.
3. Impact on Credit Score
A balance transfer can temporarily lower your credit score due to a hard inquiry and decreased average age of accounts. However, timely payments can help mitigate this impact.
4. Spending Habits and Financial Discipline
When budgeting is under control, a balance transfer might be useful. Discover what’s resulting in your financial crises and what to do to solve them.
Bottom line
A balance transfer may appear a reasonable option when dealing with excessive credit card debt. Spend time calculating how much money you owe and listing all your creditors. Once you know where you stand financially, you can compare balance transfer credit cards to choose one that works with your plan of paying off your debt. To put your financial issue in order, you must acknowledge the truth of your debt and take actions to deal with it.
Frequently Asked Questions (FAQs)
What Is a Balance Transfer Credit Card?
With a balance transfer credit card, you can transfer excellent credit from an older credit card to a recent one. This is beneficial if you have high-interest debt and wish to take advantage of a lower interest rate or an introductory APR offer of 0%.
How Does a Balance Transfer Credit Card Work?
You can ask to have your existing credit card balances moved to a new balance transfer card once you have been accepted for one. The transferred amount is added to your new card’s balance, and you will typically enjoy a lower interest rate or an introductory APR of 0% for a specified period, typically between 12 and 18 months.
Can I Transfer Balances From Multiple Credit Cards Onto One Balance Transfer Card?
Yes, most balance transfer cards allow you to transfer balances from multiple credit cards onto a single card. Consolidating your obligations into one manageable installment plan might be a huge help.