What is a balance transfer?
A balance transfer occurs when the balance of a credit card is transferred from one card to another. In most situations, the balance is moved from a card with higher interest to a card with lower interest. In some cases, only part of the balance is transferred while other times the entire balance is moved to the lower interest credit card. Balance transfers where debt from multiple cards is consolidated onto a single new card are also common.
For some consumers, balance transfers are a valuable opportunity to drastically reduce their credit card debt. The lower annual percentage rate (APR) on their new card allows them to pay off their debt at a much quicker rate. Also, by transferring your credit card balance to a card with a lower APR, you can lessen the burden of interest accruing at an unmanageable rate. Many people find their credit card bills much easier to manage after a balance transfer.
How do balance transfers work?
You can begin the balance transfer process by selecting a new credit card with a lower APR than your previous card. After the credit card company approves your application, your old balance is transferred to the new card. Interest will accrue at a lower rate with your new credit card after the balance transfer is complete.
Monthly payments can be made on the new card after the balance transfer is completed. By paying their credit card bill on time every month, cardholders can typically pay off the credit card bill of their new card much faster than they could have with their previous interest rate.
Who should consider a balance transfer credit card?
Balance transfers are a good choice for anyone who wants to take control of their credit card debt. They are ideal for people who have a substantial amount of debt built upon a credit card. They are especially beneficial if you are struggling with high interest because they offer the opportunity to substantially lower the amount of interest that accrues per month on your credit card bill.
Balance transfer credit cards can also be useful for people who want to consolidate many credit card balances onto a single card. It can be confusing to keep track of monthly bills from multiple cards. Balance transfers allow cardholders to make a single credit card payment once a month. They eliminate the stress of having to remember different due dates and eliminate the need to make many different payments.
What type of credit is typically required to be approved for a balance transfer card?
Being accepted for a balance transfer card depends entirely on your credit score. Credit card companies want to see a solid history of timely payments before they offer you a lower interest rate through balance transfer.
People with higher credit scores are normally eligible for balance transfer cards with lower interest rates and better perks. If your credit score is excellent (750+) you’re probably eligible for cards that offer benefits such as no balance transfer fee and a period of 0% interest.
There are plenty of balance transfer cards available for people with lower credit scores as well. If your credit score is considered good (680-749) you will still qualify for many balance transfer credit cards. Many of these cards still offer decent perks such as 0% interest as an introductory offer.
If your credit is considered fair (600-679), it may be harder to find balance transfer cards with perks such as 0% interest for the introductory period. These cards also may have slightly higher interest rates than some of the best balance transfer cards. However, it’s still worth obtaining a balance transfer card even without all the perks. The lower interest rate is still a huge benefit and could save you a lot of money.
It may be difficult to find a decent balance transfer card if your credit is considered bad (Lower than 600). It may be possible to find a card that will accept you, but the interest rates will not be nearly as good as they are with the excellent cards. If your credit score is low and you’re considering getting a balance transfer card, it’s a good idea to get a secured credit card for a while first in order to build up your credit score. Therefore you’ll be eligible for better offers and lower interest rates.
What is a balance transfer fee?
When a credit card company allows you to transfer your debt to a new card, they normally charge you a balance transfer fee. Balance transfer fees commonly range from anywhere between 3% to 5%. The more debt you carry, the greater your balance transfer fee will be. Balance transfer fees typically need to be paid immediately when you open your new balance transfer card.
Balance transfer fees usually aren’t an issue if your debt is low. However, they can quickly become expensive if you have a lot of debt. For example, if you carry $7,000 in debt then you could end up paying $210 as a balance transfer fee at the normal rate of 3% of your balance. This is why it’s important to search for a credit card with low balance transfer fees. Many cards have special offers for customers with high credit scores that offer lower than average balance transfer fees as an incentive for signing up.
Depending on your credit score, you might even be able to qualify for a credit card that doesn’t charge a balance transfer fee. This could potentially save you hundreds of dollars depending on how much credit card debt you carry.
Do balance transfer cards typically have annual fees?
There are many balance transfer cards both with and without annual fees.
At first glance, it may make more sense to go with a credit card with no annual fee. However, it’s important to keep in mind that sometimes cards with annual fees have other advantages that make the fee worth it. For example, credit cards that offer a yearly fee often have lower interest rates than their competitors.
It’s common for credit card companies to offer many incentives when you first sign up, and you might end up having to pick between “no annual fee” and “0% APR for your first year” or something similar. In many cases, it would be more beneficial to select the card with 0% APR. For someone with high credit card debt, the interest they accrued over the course of a year would possibly be much higher than an annual fee. Therefore, even if they had to pay an annual fee they would end up saving money because of the reduced interest.
It’s important to do the math and figure out how much you’d end up saving in interest by choosing a balance transfer card with an annual fee.
If your debt isn’t high, you might be better off simply choosing a card with no annual fee. If finding a credit card with no annual fees is important to you, a good place to find these is at a credit union. Credit unions offer credit cards with no annual fees, but they normally require you to be a member and possibly even have a savings account before they’ll issue you a card.
How do you transfer credit card balances to another card?
The first step to transferring your credit card balance is doing proper research and selecting a suitable card for your balance transfer. Look for cards with low balance transfer fees and low APR.
It’s a good idea to shop around until you find the credit card best suited for your individual situation. For example, if you have high debt and want to pay your balance off as quickly as possible before your 0% APR period is over, you should look for a credit card with a long 0% APR period. This will give you enough time to pay off your debt without accruing even more interest.
It’s important to remember that each person’s financial situation is different. What may be an excellent choice for one person could be a poor credit card choice for someone else.
After you’ve selected the credit card you intend to transfer your balance to, you’re ready to apply. The easiest, quickest way to submit your application is online through the credit card company’s website. You’ll need some basic information such as your address and telephone number, as well as more sensitive information such as your social security number and annual income.
After your application is submitted, you may need to wait a few days to receive a decision. Some companies will notify you right away while others will make you wait so they can carefully review your application. Sometimes you even have to wait for a reply through the mail.
Once your application is accepted, you’ll receive a new credit card in the mail. After activating your card and becoming familiar with all its policies, you’ll be able to transfer your balance. Make sure you have your old credit card account number on hand as well as the exact amount of the old balance you wish to transfer.
You can initiate the transfer by calling your new card’s customer service line. The number is normally listed in fine print on the back of your card. The customer service agent will be happy to assist you with transferring your balance onto your new card. This is also a good time to ask any last-minute questions you may have about how your new credit card company handles balance transfers.
After confirming the transfer with the customer service agent, the call will end and they will handle the details of the balance transfer with your old credit card company. There’s nothing more you have to do except waiting. Keep in mind that it can take a week or two for the balance transfer to go through.
After the process is completed and your balance is transferred, you’ll probably receive a confirmation through email or regular mail. It may seem like your work is done once the balance transfer goes through but this isn’t the case. Now it’s important to create a plan to tackle your debt as efficiently as possible.
How can you save money with balance transfers?
It’s possible to save a lot of money with balance transfers. The best way to do this is to transfer your credit card balance from a card with high interest to a card with lower interest.
You can save even more money if you’re accepted for a credit card with a 0% APR promotion. Credit card companies sometimes offer these promotions as incentives for signing up for their services. By shopping around, consumers with excellent credit can often find cards that offer 0% APR for an entire year or something similar. This can end up saving you hundreds or even thousands of dollars in interest over the course of a year.
It’s even possible to pay off your entire balance during the 0% APR period, which means you won’t accrue any more interest on your old balance. A lot of money can be saved by taking advantage of these 0% APR promotions, but these deals are often reserved for consumers with high credit scores.
Consumers with good or average credit still have plenty of opportunities to save money with balance transfers, even without the 0% APR promotions. For example, if you had $10,000 in debt on your old credit card with an interest rate of 20%, that means you would have been paying $2,000 a year in interest alone. If you did a balance transfer and switched to a card with 15% APR, your yearly interest would drop to $1,500. By transferring your balance to a card with a lower APR, you can easily save $500 over the course of a year.
Transferring your balance to a card with lower interest will save you money even without special offers, but if you have the opportunity to take advantage of money-saving promotions you should consider taking advantage of them.
When presented with a 0% balance transfer offer, what should you consider?
There are several things to consider when you receive a 0% balance transfer offer. Although the lack of interest can be very enticing, it’s important to take other things into consideration as well.
One thing to consider is balance transfer fees on cards with 0% interest offers on balance transfers. Even if a card offers 0% interest for a set amount of time, high balance transfer fees may end up costing you money. It’s important to calculate the amount of money you’d save in interest and compare it to the money you’d end up spending on balance transfer fees.
You should also consider whether or not you intend on making new purchases with the card you transferred your balance to. If you make new purchases, these might not be eligible for 0% interest. The 0% interest promotion may only apply to your previous balance.
There are other factors to consider as well, such as sign-on bonuses and rewards categories. However, these rewards are only a factor if you intend on making new purchases. Many people choose to use their balance transfer credit cards only to pay off their old debt and refrain from making new purchases at all.
Can you transfer balances from store credit cards?
Yes, balance transfers can be done on store credit cards. For example, if you have a card issued by a department store with an APR of 22%, you can transfer your balance to a regular credit card with an APR of 15%. Store credit cards often have high-interest rates, so it’s worth considering a balance transfer if you have a substantial amount of debt on a store credit card.
Is there typically a penalty if the balance is paid off early?
Credit card companies usually don’t offer a penalty if your balance is paid off early. This is because you typically don’t sign a payment plan or agreement which locks you into paying them a certain amount of interest.
On the contrary, it could be very beneficial if you pay your balance off early. It could save you a substantial amount of money in interest and even raise your credit score. If paying off your balance early is a possibility, it’s a decent option to consider.
Are no balance transfer fees or longer 0% APR offers better?
This depends entirely on your individual financial situation. In some cases, a person would benefit more from no balance transfer fees and in other cases they would benefit more from a longer 0% APR offer.
Since balance transfer fees normally run between 3% and 5%, if your credit card balance is $10,000 you’ll end up paying between $300 and $500 as a transfer fee when you first initiate the balance transfer process. A card that offers no balance transfer fee eliminates this completely, so you can start off with your new card without extra fees. Therefore, credit cards that waive balance transfer fees are much more beneficial for people with high debt. A person with very high debt will end up paying a lot more in-balance transfer fees than someone with low debt.
Credit cards that offer no balance transfer fees aren’t as useful for someone with lower debt. For someone who only has $1,000 in debt, balance transfer fees aren’t so much of an issue because the 3% fee will only end up being $30. Although inconvenient, this is much more manageable than the large fee someone with higher debt would pay. For consumers with lower debt, waived balance transfer fees shouldn’t be a huge factor in selecting a credit card. They could most likely benefit more from 0% APR offers.
A long 0% APR period is extremely valuable, and in many cases, this can end up saving you more money than a waived balance transfer fee in the long run. Think of it this way: Yearly interest is almost always higher than the average balance transfer fee of 3% to 5%. Therefore 0% interest is a far more appealing offer for many consumers, even if you have to pay the initial balance transfer fee. If consumers intend on paying off their balance before their 0% APR period ends, the lack of interest can be a lot more valuable than a waived balance transfer fee.
Will I be able to pay off my debt more quickly after doing a balance transfer?
Many people find it much easier to manage and pay off their debt after going through a balance transfer. Balance transfers allow you to pay your actual credit card balance more quickly and to spend less money on interest. With high-interest rate credit cards, a substantial chunk of each monthly payment may end up going towards the interest which can make the process of paying off debt go a lot slower. After a balance transfer, the reduced burden of paying high interest is very helpful for many people and allows them to pay off their credit card debt at a much greater rate.
Can I transfer only part of my balance?
Yes, most credit card companies will allow you to transfer either all or part of your balance when conducting a balance transfer.
Since many people choose to transfer their full balance so they can take advantage of lower rates, in most cases it’s sensible to transfer your entire balance in order to receive lower interest.
How can I make sure to pay my credit card bill on time so I don’t receive penalties?
It’s important to pay your credit card bill on time to avoid penalties and losing out on your promotional offers. Auto-pay can be extremely helpful for people who struggle with remembering to pay their bills on time. Many credit card companies offer the option for auto-pay on their website, which allows funds to be deducted directly from your bank account to pay your bill at a set time each month.
Should I make purchases on a credit card I’ve transferred my balance to?
Some experts say that it’s best to refrain from making new purchases on a credit card you’ve transferred your balance to. Their explanation is that purchasing new items will only add to your debt, and the main purpose of doing a balance transfer is to reduce your debt. However, some consumers choose to make purchases on a balance transfer credit card in order to take advantage of rewards programs or for other reasons.
What happens if I make a late payment on my balance transfer card? Will I be penalized?
If you make a late payment on your balance transfer card you’ll most likely be charged a late fee for that month. Some credit card companies even take away your promotional offers when you’re late paying your bill, so you also risk losing offers such as the 0% APR period. Your credit card bill should always be paid on time to avoid these inconvenient penalties.
Could I benefit from a balance transfer even if I’m not struggling with high interest?
Yes, there are benefits to a balance transfer aside from the lowered interest rate. Some people do a balance transfer in order to consolidate payments from several different credit cards. They find it too complicated and stressful to pay multiple credit card bills every month, so they consolidate all their previous balances onto a single new card.
You don’t need to be struggling with high interest to do a balance transfer. Some people do it simply for peace of mind and organization.
Can I transfer my balance to a new credit card more than once?
Yes, it’s possible to transfer your balance multiple times. However, this might look questionable to lenders and could have an impact when you apply for credit cards and loans in the future. Generally, it’s a good idea to refrain from doing too many balance transfers and to avoid transferring your balances around unnecessarily.
Another important detail is that when doing a balance transfer, you almost always have to change credit card companies. You’ll have to switch from one brand to another, and can’t jump around between different cards offered by the same provider.
Can I get a sign-on bonus with a balance transfer credit card?
Yes, it’s possible to qualify for a sign-on bonus with certain balance transfer credit cards. However, you may need to spend more money in order to receive the bonus which may add to your debt in the long run. For example, you may be able to find a balance transfer card that offers you $150 after you spend $300 in a 3-month period. The bonus may be tempting, but it might be a good idea to refrain from any new transactions on your balance transfer card. It’s a good idea to pay off your old debt before accruing even more new debt. Therefore, a sign-on bonus isn’t always a good thing with balance transfer cards.
How can I pay off my balance as quickly as possible?
An effective way to pay off your balance as quickly as possible is to avoid making any new charges on your balance transfer card. Paying off your debt will be quicker and easier if you aren’t adding to your balance. Also, new purchases may have a higher interest rate than money brought over from a balance transfer.
Creating a monthly payment plan and a budget can also be helpful for paying off your balance quickly. A budget may help free up more money to allocate to paying off your credit card balance.
What’s the best way to take advantage of my 0% APR offer before it expires?
A 0% APR offer gives you the opportunity to pay off your credit card without paying interest. If possible you should aim to pay off your credit card before this period ends. If you still have a balance after your 0% APR period ends you’ll have to pay interest again. If paying your bill off within the 0% APR timeframe is an option for your lifestyle, you should take advantage of it.
What if my balance transfer credit card is lost or stolen?
If your balance transfer card is lost or stolen, contact your credit card company immediately. They will be able to cancel your card and issue you a new one with a different number and security code. It’s imperative to contact them right away to prevent fraudulent charges.
You will not be responsible for charges on your balance transfer card if it was lost or stolen. If a fraudulent charge appears on your statement, your credit card company will remove it.
Will doing a balance transfer negatively impact my credit score?
A balance transfer requires a credit inquiry which can make your credit score drop a few points. However, over time a balance transfer can actually improve your credit score by improving your credit utilization. Your credit utilization ratio can be found by doing some basic division. Simply divide the total amount you owe by your credit limit across every card you own.
Since your new balance transfer card will have a credit limit of its own, it increases your overall credit limit and therefore improves your credit utilization. Therefore, you shouldn’t worry about a balance transfer negatively impacting your credit score. The initial credit inquiry lowers it by an inconsequential amount compared to how much it will improve.
Should I close my balance transfer credit card after I’ve paid my balance in full?
It may seem like a good idea to close your balance transfer card after you’re done paying it off, but this can actually hurt your credit. By closing your credit account you’ll lower your credit score, so it’s best to refrain from doing this.
Keep in mind that after your balance is paid off, you can still use your balance transfer card like a normal credit card if you wish.