What Is a Credit Card Balance Transfer?

Reports show that the average credit card debt is nearly $8,000. This amount may seem impossible to pay off, especially if you have high interest rates or your debt is spread across several cards. One way consumers pay down this debt is through a credit card balance transfer. But what is a credit card balance transfer?

A credit card balance transfer is the practice of moving debt from one credit card account to another. Typically, this is done to obtain better interest rates. 

For example, many balance transfer credit cards offer an introductory period with APR rates as low as 0% for a set period. This introductory period typically lasts anywhere from six to 18 months. However, you may incur a balance transfer fee of 3% to 5% based on the specific card details. Despite this fact, you still may be able to save money by transferring your balance to one of these specialized cards.

Before you consider transferring your balance, it’s important to understand how balance transfer credit cards work, as well as the advantages and disadvantages of this option.

Advantages and Disadvantages of a Credit Card Balance Transfer

Before deciding if a credit card balance transfer is right for your specific situation, it’s important to explore the advantages and disadvantages of this type of transaction. 

Pros

There are a number of great advantages to transferring your debt to a balance transfer credit card.

• Transferring your current credit card balances to one with interest rates as low as 0% APR during the introductory period can help you save money over time.
• Obtaining a balance transfer credit card can help you consolidate several smaller credit card balances into one convenient card.
• If you make on-time monthly payments, you can take advantage of the 0% APR to pay your debt down faster. 

Cons

There are also a few disadvantages you should consider before opening a new balance transfer credit card.

• Many balance transfer credit cards charge a balance transfer fee that typically ranges from 3% to 5%. While this may seem like a small amount, it could equate to $30 to $50 per $1,000 you transfer. However, the benefits of lower interest rates could easily outweigh this extra fee. 
• Once the introductory period is over, your APR will revert to the higher standard rate. It’s important to compare this rate to your current interest rates before transferring your balance. If you’re not careful, you could end up with higher rates for future purchases or any unpaid balance at the end of the introductory period. 
• Due to the benefits of balance transfer credit cards, many credit card companies require applicants to have good to excellent credit. 

How Do Credit Card Balance Transfers Work?

Before you can transfer your credit card balance, you must apply and be approved for a new balance transfer credit card. Many credit card companies require applicants to have very good or excellent credit scores to qualify. You can use Credit.com’s Free Credit Score tool to check your credit score to ensure you meet the company’s credit requirements. 

Be sure to compare your options to determine which balance transfer credit card option is right for you. When making this comparison, there are a few factors you should consider:

• Length of introductory period
• Balance transfer fees
• Standard APR rates
• Annual fees
• Other costs and fees
• Credit limit

Once you choose the right card, you must take steps to transfer one or more of your current credit card balances. Some credit cards provide convenience checks to make it easier to transfer your balances to your new account. If this is the case, you can simply use these checks to pay off your current balances and the amount will automatically transfer to your new account. 

Before using these checks, make sure they are specifically for balance transfers. Otherwise, these funds may not transfer correctly. 

You can also handle the balance transfer process online using your credit card app or by contacting your new credit card company by phone. When making this transfer, you must have all the relevant information about your current account, such as issuer name, account number and amount to transfer. It could take a few weeks to finalize this transfer. 

Things to Consider About Balance Transfer Credit Cards

While balance transfer credit cards certainly have their advantages, there are several factors you should consider when making this decision. 

First, once you transfer your balance to your new credit card, it’s crucial to make on-time payments and meet all other conditions. Failure to do so could jeopardize your low introductory APR. Additionally, late credit card payments could negatively impact your overall credit health. 

Secondly, keep in mind that your credit card company won’t alert you when your introductory period is coming to an end. If you’re not careful, the standard interest rates could take effect before you have time to pay down your balance. 

Finally, you may want to compare credit card balance transfers with other viable options. For instance, if you can’t pay off your current credit card balance within the introductory period, it may make more sense to obtain a personal loan.

Now that you know what a credit card balance transfer is, you can more easily decide if this is the right option for you. Before you make any decision, you may want to get a better understanding of your current financial status. Use Credit.com’s Free Credit Report Card to get a full view of the factors most affecting your credit score.

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