How Balance Transfers Work

When you do a balance transfer of your credit card debt, it involves taking the current balance that you owe one credit card company, and transferring it over to a new card. The most obvious advantage of taking a balance transfer is to save money by transferring a balance that is accruing higher interest to a card that is offering a lower interest rate, or APR. For instance, if your existing credit card has an interest rate of 12.99%, and you receive an offer to do a credit card balance transfer to a card that has an APR of just 3.99% or even a zero percent interest card, then you would definitely save on the interest that is tacked onto your account balance each month. You can transfer balances from more than one account onto a new credit card, and many of them will also let you transfer balances from department store cards as well. So, in a nutshell, that’s how you can save a significant amount of cash.

Other Advantages of Transferring Your Balances

Besides the potential savings that you can realize from doing a credit card balance transfer, you can also benefit from having all of your credit card debt transferred over to one card. This allows you to get a better picture of your overall debt and streamlines the monthly payment process because you would only be paying one lender each month.

Finding the Right Balance Transfer Offer

Wading through the sea of available credit card balance transfer offers can be a daunting experience because there are so many banks out there looking to lure consumers in. Many credit card balance transfer offers may look good at first glance, but the fine print may tell an altogether different story. Make sure that you read all the details about what you are being offered before you accept the card. You should look for a card that offers you the following benefits when you do a balance transfer:

• Low (optimally zero percent) APR. Make sure that the introductory rate that you are offered is valid for an extended period of time – at least a year. After that, know what the APR will revert to and make sure it is a rate that is more competitive than your existing card.
• No annual fee. You don’t want to negate the savings of doing a balance transfer by paying an annual fee. Many cards have no annual fee, while some may charge $250 or more right off the bat when you take out a card.
• Minimal or no fees for transferring the balance over to the new account.

Be sure to review more than one balance transfer offer before committing to a particular card. Stiff competition between credit card issuers means that even though one deal seems “sweet”, you may click around on the Web and find an even sweeter deal with another company.

Terms of the Offer

As appealing as a 0% APR balance transfer offer may seem on the surface, wise consumers will do a bit of investigating before signing on the dotted line and accepting the offer. Some offers may feature a zero percent APR for a very limited (usually around six months or so) period of time, while some may give you this great (free) rate for longer. For consumers looking to pay debt off fast, such as within the amount of time that the balance will be billed at zero percent, these offers are ideal. If you plan to take your time paying off the balance, then make certain that the APR that you will be charged after the initial “welcome” period is not higher than what you are already paying. You must also look at how much it will cost to transfer your balance from your existing credit cards to a new card when determining if a 0% APR balance transfer offer is for you. Most credit card companies will charge some type of fee for transferring the balance to your new card. Take this additional cost into consideration when making your decision. Also look at these possible pitfalls for the offer you are reviewing:

• Many people transfer a balance on a 0% APR credit card and then continue to make new purchases on either the old card or on the new card. This can lead to a never ending cycle of debt. If you transfer the balance over, don’t make any new card purchases until you have paid off the balance in full.

• Check to see if the introductory APR on the 0% balance transfer offer reverts over to a higher rate. Many card companies will revert the account over to what is known as the “cash advance rate” after so long if the balance that was transferred is not paid off within a particular timeframe. This is the same elevated rate that you are charged when you do a cash advance – and can be quite expensive.

• Find out before taking advantage of the offer if you are required to pay an annual fee. A high annual fee can make transferring your balance over less of a good idea if your savings go down the drain with it.