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Credit Card Balance Transfers: How They Work

Find out how balance transfers work to move debt to a credit card, which is a popular strategy to refinance or consolidate debt at lower interest rates.

High interest rates can keep you from making a dent in your credit card debt.

Transferring balances to a card with a lower annual percentage rate could save money--and help you pay off debt faster.

But what is a balance transfer and what are the pros and cons?

Here's a closer look at how balance transfers work.

What is a Balance Transfer?

A balance transfer is a way to move your existing balance onto another credit card that has a lower introductory interest rate.

For example, you may move a balance from a card that charges an APR of 18.99% to one with a 0% introductory rate. 

This initial rate is commonly referred to as the teaser rate. It can last anywhere from six to 21 months, depending on the card.

Once the introductory period ends, the regular variable APR for balance transfers kicks in.

Many credit card companies recognize that you might need a break on interest in order to completely pay off your credit card balance. So they offer low-interest balance transfers to attract new customers.

Balance Transfer Pros & Cons

Pros Cons
  • Potentially save money on interest charges by combining balances at a lower rate
  • Streamline debt repayment by combining multiple cards into one for a single monthly payment
  • Potentially pay off your debt faster
  • Interest savings may not be realized if you don't pay the balance in full by the end of the promotional period
  • Cards with zero balances may be a temptation to spend and create new debt
  • Balance transfer fees may apply

How Much Does a Balance Transfer Cost?

Typically, a credit card balance transfer fee will cost 3% to 5% of the transferred amount with a $5-$10 minimum fee.

The reality is:

While credit card companies can offer balance transfers to help customers save money, they're not necessarily free.

There are generally three ways to complete a balance transfer:

  • Request a transfer online when applying for a new credit card
  • Request a transfer online with an existing credit card
  • Transfer balances using a balance transfer check

In all three scenarios, the balance transfer fee may apply.

For example, your card may charge a flat fee of $10 or 3% of the transfer amount, whichever is greater.

This fee gets added onto the balance you're transferring from one card to another. That's important to note because the higher the fee, the more debt you'll have to pay off once the transfer is complete.

Do fee-free balance transfers exist?

Yes, depending on the card. Some card issuers reduce or waive the fee for balance transfers for new cardmembers.

The catch:

You may have to complete the transfer within a certain time frame--say, the first three to four months of account opening--to avoid the fee.

Taking Advantage of Introductory Periods on Balance Transfers

The most important thing to keep in mind with balance transfers is that the introductory rate doesn't last forever.

Once the promotional period ends, interest will apply to any remaining balance owed from the initial transfer.

Credit card companies aren't simply trying to do you a favor.

They offer this gamble in the hopes that you might trip up and incur additional fees, or at the very least, stay on as a customer after the teaser rate expires and your interest gets hiked up.

if you're taking advantage of an introductory period on balance transfers, keep these tips in mind:

  • Plan out how to pay back your balance. It might not be worth transferring your balance to a low-interest credit card if you end up accruing more debt before the teaser rate ends.
  • Don't fall behind. While waiting for your balance to transfer, remember to continue paying the minimum required balance on your old credit card.
  • Make sure the transfer is complete. Only when you receive confirmation from both credit card companies of the completed transfer should you stop making minimum payments and perhaps look into closing the old account

And of course, be sure to read the fine print on any balance transfer offer before signing up.

Here are some specific things to watch out for:

Make sure that 0% is actually 0%

Some companies promote free interest but actually only apply it to certain customers, while others instead receive 3% or higher.

Even 0% might not be exactly 0%

A credit card can offer 6 months of zero interest but require a 2% fee for every balance transfer.

Always pay on time

Most balance transfer credit cards stipulate either harsh penalty fees or the termination of the low teaser interest rate (or both) for late payments.

Know when the teaser rate ends.

Plan for exactly when the normal interest rate begins, and ask for specifics from promotions that last "up to" however many months.

Use your new card sparingly if necessary

The 0% interest on your transferred balance might not apply to new purchases you make on this card, so don't let your latest spending get buried in newly collected interest.

Apply the same standards you would to other credit cards

If you plan to continue using your new credit card — and don't plan on companies allowing you to hop to and from various balance transfer cards as soon as your low rates expire — look for one with low or no standard charges such as annual fees.

Balance Transfer for Credit Card Refinancing

There are different reasons for completing a balance transfer. And one of the most popular is to refinancing existing credit card debt.

Here's how a balance transfer for credit card refinancing works:

  1. You apply for a new balance transfer credit card
  2. When you apply, you tell the new card issuer what balances you want to transfer
  3. The new card issuer transfers the balance from the old card, charging you a fee in the process
  4. You pay the new card each month going forward

Sounds simple enough. But consider the pros and cons to make sure it's the right move.

Balance transfer for Debt Consolidation

Balance transfer offers can also be used to consolidate other types of debt, beyond credit cards.

For example, say your credit card company sends you a balance transfer check. You could use that check to:

  • Pay off personal loans
  • Consolidate medical debt
  • Pay off past-due bills

The pros and cons of using a balance transfer to consolidate debt are similar to those for refinancing credit cards.

The biggest upside is that you may be able to save on interest if your balance transfer APR is lower than the rates for the debts you consolidate.

You can also use a balance transfer to consolidate past due debts. This could help your credit score if no new late payments are being reported to the credit bureaus.

Balance Transfer FAQs

What happens to old credit card after balance transfer?

Once you transfer a balance from Card A to Card B, you'll have two credit card accounts.

At this point, you have to decide whether you want to keep Card A open or not.

Closing the account down can keep you from making new purchases with the card and adding to your debt. But it could hurt your credit score if you're reducing your overall credit utilization.

This is the amount of available credit you're using at any given time. So think about potential credit score impacts before closing an old account.

How long does a balance transfer take?

A balance transfer isn't instant. It can take anywhere from a few days to a few weeks to complete.

So again, you'll need to keep up with the minimum payments to the first card until the transfer is complete.

This can keep your credit score from getting dinged for a late payment. And it can also help you avoid any costly late payment fees.

Can you transfer balances from a loan or another credit card?

It's possible to transfer a loan balance to a credit card if your credit card issuer allows it.

This can be as easy as using a balance transfer check to make the move. As far as transferring balances between credit cards go, you can do this as well. But there is one important rule to know.

Credit card companies typically don't allow you to transfer balances between cards from the same issuer.

So if you have one Chase credit card you wouldn't be able to transfer that balance to another Chase card. Or if you have one Citibank card you wouldn't be able to transfer its balance to a new Citi card.

That's important to keep in mind as you're shopping around for balance transfer offers.

Can a balance transfer affect your credit score?

The short answer is yes, a balance transfer can affect credit scores.

First, a new inquiry can show up on your credit reports when you apply for a balance transfer credit card. Inquiries can knock a few points off your score.

Next, consolidating balances and opening new lines of credit can affect your credit utilization ratio.

If you open a new balance transfer card but don't charge anything new to the cards you're paying off or close those accounts, that could help your credit utilization ratio.

But if you charge up balances on the old cards or shut them down, that may hurt your credit utilization and cause your score to drop.

Finally, balance transfers can affect your credit if you miss a payment on the old card or the new one.

Payment history accounts for the largest part of your FICO credit score. So when planning a balance transfer, make sure you're paying on time both before and after it's completed.

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