Everything You Need to Know About Balance Transfers

Reading time: 7 minutes

7 minutes read

Category: Credit Cards
Posted on: 04/16/2019
closeup of hands typing on a laptop keyboard while holding a credit card

You have debt and have heard about a little thing called balance transfers and are curious as to whether this option in addressing your debt balances is right for you or not. 

Whether your debt is overwhelming or just a small, stubborn amount, the balances remaining feeds interest charges that is feels much like throwing your hard-earned money away. There’s a reason why balance transfers exist, but is the concept too good to be true?  What do you need to know before diving headfirst into this option?

What’s a Balance Transfer?

You don’t have to have a lot of debt to rack in high interest charges, and that reason alone is why people so often turn to a balance transfer. A balance transfer is a simple concept: you have debt on your credit card, probably suffering from a high-interest and a balance transfer grants you the ability to move this debt onto another card with a lower interest rate. Essentially, you’re using one card to pay off debt on another.

Signing up for a new balance transfer card can be done online or over the phone, but you’ll want to pay attention to how soon the balance will transfer over to the new card. This is because payments must be made on the old card until the transfer is completed. 

For some balance transfer card issuers, the transfer could take up to three weeks, so keep your eyes out for the notification and continue making payments on the original card to avoid fees and charges.

Depending on what balance transfer card you settle on will dictate the amount the issuer will allow for you to transfer from your one credit card to the new one. Another stipulation that restricts your transferring abilities is that you can’t transfer debt from one card to another under the same issuer. For example, you won’t be allowed to transfer debt from your Chase card to another new card issued by Chase.

A balance transfer can be immensely helpful for someone who has multiple debts spread out over various cards and wishes to consolidate them into one balance. It’s much easier to pay down a debt this way and you won’t have to worry about juggling multiple cards and their interest rates or fees.

What Should You Look for in a Balance Transfer Card?

To find the right balance transfer card for you, you’ll need to do a little bit of research on what to look for:

Fees:  balance transfer cards make money for their issuers with a fee for every transfer you do. Most of these cards will charge you a 3% to 5% fee of the amount you want to transfer. There are a few cards that have no balance transfer fees.  This is something to consider if you plan on making use of this card and issuing transfers often.

Interest Rates:  interest rates are one of the key aspects in any type of card, whether it’s a balance transfer card or regular rewards-based credit card. A balance transfer card will have a lower introductory rate for transfers and for many there’s a 0% intro period.  This helps the user work to pay off debt.

Promotional Periods:  promotions are enticing and if you’re good at planning your finances, you can take advantage of balance transfer cards promotional periods to rid yourself of the debt with all the available perks they offer. A good balance transfer card will allow you some time to help you pay off your debt.

Annual Fee:  another way for issuers to make money is from an annual fee. If you’re interested in a balance transfer card to pay off lingering debt, the best card for you would be one that doesn’t have an annual fee, and yes, they do exist!

What to Look Out for in Balance Transfers

A general rule of thumb is that if you’re able to pay off your debt in six months, then you won’t need to do a balance transfer. In the long run, you will end up paying way more in fees than you would simply paying down your original credit card. 

Before signing up for a balance transfer, read up on it as much as you can, do a little math and see if you’re going to end up paying more or if you can get away with the balance transfer being a cheaper option. If you can find a balance transfer card that doesn’t have any fees, then that would be your best option

If you want to pursue a balance transfer as an option to pay off your debt, you’ll need an upstanding credit score, preferably one that’s 720 and above. Balance transfer card issuers won’t risk themselves by granting cards to people with poor credit history and low credit scores. 

Balance transfers will save you on interest, but to enjoy this perk, you’re going to have to be diligent in making on-time payments. Issuers are known to be strict in payments on balance transfers, so if you miss a payment, you could lose all of the advantages that come with this balance transfer card, including the promotional perks. 

The fees will be enough to penalize you, however, as balance transfer cards will slam you with high fees if you miss a payment, and in the end, you’re attempt to pay off debt will be more expensive than you intend.

Ultimately, ask yourself the question: will what you save on interest be higher than your balance transfer fee? Do you have the ability to pay off your balance during the time your issuer is offering a 0% period?

A balance transfer means you are moving your debt around, which isn’t the same as repaying. While that may seem obvious, some people can become caught up in this method and forget that all they’re doing is moving the money from one card to another. Keeping this in mind will allow you to see clearly how much you‘ll be paying, or hopefully saving when all is said and done.

Is it Better to Pay Off Your Debt?

In some cases, yes, it’s better to pay off your debt and just opt for a fresh start. Moving your debt via balance transfer from one card to another won’t really do you any favors and it quickly becomes a cycle of moving debt around instead of knocking it down to zero. 

If you do go for a balance transfer, you’ll have the old card where the debt was originally in place on to deal with. You can certainly close this card and it won’t hurt your credit score or come across as negative on your credit report, and many people choose to close unnecessary card accounts to avoid paying an annual card fee. These closed accounts will remain on your credit report for about 10 years.

Once you’ve made the balance transfer, it’s going to be a matter of getting that debt down to zero during the interest-free period, and if this isn’t something that’s feasible for you and your financial standing, then the balance transfer won’t be worth it. 

 It may mean cutting back on your lifestyle a bit until your debt is paid off, but avoiding transfer fees, interest and other charges will make this method work in the long term.

Finance Guru

Finance Guru