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.

What is a Balance Transfer?
A “balance transfer” is where one credit card company makes a payment on your behalf for a portion or the entire amount of another credit card. Typically this is done to take built-up debt from a higher-interest card and put it on a lower, or zero interest card. This can be done either directly when the application is made (via electronic transfer) or it can be done through cash checks sent with your welcome package that you can use to pay your other credit card bills with. In order to provide the service, many credit card companies charge a balance transfer fee. Typical terms are a percentage of the loan with a minimum and maximum amount. Sometimes, though, the credit card company will waive the fee if the balance transfer is done within a specific time frame.

Limitations
Balance transfers are often limited to a maximum number of transfers. Also, many times the balances have to be posted within a time frame of opening the account. A typical time frame is 90 or 180 days. Finally, many banks will not transfer balances between their own accounts. For instance, American Express will not allow you to balance transfer one American Express balance onto a new American Express account, even if the accounts are held by two different people.

Questions
During the last decade, a lot of people got tripped up on credit card debt because they didn’t ask the relevant questions before hand. Cardholders should ask plenty of questions. For instance, what happens if the credit card balance ends up lower than the amount requested for a balance transfer? Some cards will decline the balance all together while others will lower the balance transfer request. Also ask about what qualifies as a late payment and what happens to the balance. Knowing these rules can help you save on your balance and pay off the debt a little bit quicker.