What is a Credit Card Balance Transfer and Is it Right for You?

If you have a balance on a credit card with a high interest rate, you may be able to transfer that balance to a credit card with a lower rate, saving you money on interest and potentially helping you pay off your balance faster. Balance transfers pay off the balance on an existing credit card or loan by transferring them to a new credit card account. Balance transfers can consolidate multiple card payments into just one monthly payment.

What’s the Balance Transfer Process

To initiate a balance transfer offer, indicate which accounts you’d like to pay including the amount(s) and account number(s). Keep in mind, you can only transfer an amount up to your credit limit on the new card. So if you have a $5,000 credit limit and want to transfer a $6,000 balance, you will only be allowed to transfer up to $5,000 of that existing balance. Once approved for your balance transfer, you can choose to pay off the previous balances yourself or allow the new card account to send payments to your old accounts. It can take time for your old accounts to process your pay off amount. Remember to continue making any regular payments on your old card accounts until your balance transfer has been processed to avoid any late fees.

What are Balance Transfer Interest Rates and Terms?

Balance transfers offer a lower interest rate for a certain period of time called your term. Most commonly, these terms vary between 6 months, 12 months, or 18 months. After the term of your balance transfer, any remaining balance will revert to the normal purchase annual percentage rate associated with the credit card. In some cases, the promotional interest rate can be nullified due to late payments exceeding 60 days or more; the purchase APR would be applied to your balance moving forward.

What are Balance Transfer Fees?

In some cases you are charged a 3-5% fee on the amount of the balance being transferred. For example, if you want to move a $5,000 balance to a credit card with a 5% transfer fee, it would cost you $250 to process the balance transfer. Most card companies will allow you to add the transfer fee to the amount being transferred. Not all balance transfers require a transfer fee, such as the balance transfer offer available at Members 1st.

Is a Balance Transfer Worth It?

Saving more time and money are the two greatest benefits associated with a low rate balance transfer. The lower APR from your balance transfer will allow more of your payment amount to be applied to your principle amount rather than the interest, which will help you cut the time it takes to pay off your balance. Best of all, you save money by paying less on interest during your balance transfer compared to keeping your balances on your high APR cards. Finally, instead of paying multiple accounts with multiple due dates, a balance transfer will allow you to consolidate your credit cards or loans into one monthly payment with one due date to keep track of.

Things to Keep in Mind

The percentage of your credit limit used is referred to as your utilization. Try to keep your utilization low (30-40%) on your new balance transfer card since high utilization will have a negative affect on your FICO score. Do your best to pay off or pay down the balance you transfer. Doing so will allow you to avoid having to chase more balance transfer offers in the future. The purpose of the balance transfer is to help you save money from paying unnecessary interest on the balance(s) you’re paying off. Bouncing from offer to offer on balance transfers can become a very expensive endeavor, especially if those offers require a balance transfer fee. Once your balance is transferred from your old card or loan to your new card, the act of balance transfers by themselves will not automatically close your old accounts. Be sure to contact them directly and request account closures when you’re ready to do so.