What Is a Balance Transfer?

2 min


You’ve been hearing about a balance transfer credit card that can help get rid of your high-interest credit card debt, but you don’t know much about the process. Here’s what you need to know.

Balance Transfer

So, what is a balance transfer? It involves what’s called a balance transfer credit card, which usually offers a low- or 0%-interest for an introductory period of about 12 to 18 months. The idea is that, if you qualify for one of these cards, you can shift your high-interest credit cards to it and save money and pay off your debt faster. Note that you will pay a balance transfer fee of about 3%, however.

How Do Balance Transfers Work?

After you move a balance to plastic, that card’s issuer satisfies your debt with the original lenderand transfers your obligation to the new card company. The original lender may not block you from shifting away a balance.

To do a balance transfer, you’ll need the account number for your existing balance, the dollar amount you want to transfer, and standard information such as your social security number.

Once you complete a transfer, you must pay at least the minimum monthly amount the issuer requires. If you carry much of a balance beyond the introductory or promotional period, though, your balance will be subject to the new higher interest rate. 

Balance Transfer Tips

Check your credit score. Because you need good or excellent credit to qualify for one of those 0% balance transfer credit cards, you should find out where you stand. See debt consolidation for bad credit.

Decide How Much to Transfer. You don’t have to transfer your entire balance. In fact, partial transfers let you benefit from a card’s promotional period without fretting about paying off the entire balance before the regular rate becomes effective.

To figure out what amount you should transfer, pinpoint the monthly payments that you can easily make, and multiply that by the number of months you’ll have a low introductory rate.

Don’t Forget About Fees

You may be so excited to shift that high-interest debt that you overlook balance transfer fees. Such fees can be pricey but are often not clearly marked on credit card applications. Look carefully.

Make a Payoff Plan

You must go into balance transfer deliberately and thoughtfully. So, you should decide ahead of time how much you plan to shift, and when you can pay the debt off. You can use a credit card payoff calculator to determine what monthly amounts you’ll need to make to pay off your debt by the time the regular interest rates become effective.

Don’t Take 0% Rates for Granted

It’s not a given that 0% balance transfer credit cards will be available. Therefore, you should treat every balance transfer you make as one on which you must pay regular rates at the end of the promotional period. 

Shop Around

You shouldn’t have to look very hard to find a balance transfer card, although getting the best deal means determining which ones you qualify for, then sizing up the total available savings for each. Such savings hinge on interest rates, fees, and, if applicable, introductory period.

Keep Your Original Account Open

Even if you don’t plan to keep using the account from which you shift a balance, keep it open. This will ensure that your overall credit utilization rate won’t take a negative turn.

Now you know what a balance transfer is. If you take the info, incorporate it into your plan, and stay the course, you’ll be on solid financial ground in no time. Get going.

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