Understanding Balance Transfers: How They Work and Whether They’re Right for You

Updated on January 10, 2023

Want to pay off your credit card debt without incurring additional interest charges? Learn about the financial maneuver that could help you do just that – the balance transfer. Find out more about how it works and what to look out for when considering this option.

Summary

A balance transfer is a financial maneuver that allows an individual to move debt from one credit card account to another
This can be useful for paying off debt without incurring additional interest charges by transferring the debt to a credit card with a promotional 0% interest rate on balance transfers
Balance transfers may come with fees, usually 3-5% of the transferred amount, and may be limited by the available credit limit on the receiving card
To initiate a balance transfer, an individual must apply for a credit card with a promotional 0% interest rate or use an offer on an existing card, and provide the issuer with information about the debt to be transferred
The best balance transfer cards offer a 0% introductory APR, a $0 annual fee, and a $0 balance transfer fee, though it may be difficult to find a card with all three of these features
A balance transfer may be a good option for individuals with good credit and a large balance that will take several months to pay off, though other options such as paying off the debt as quickly as possible or taking out a personal loan may also be considered.

What is a Balance Transfer?

A balance transfer is a financial maneuver where an individual moves debt from one credit card account to another. By transferring high-interest debt to a credit card with a promotional 0% interest rate on balance transfers, an individual may be able to pay off their debt without incurring additional interest charges. However, it is important to note that balance transfers often come with fees, typically ranging from 3% to 5% of the total amount transferred, and may be limited by the available credit limit on the receiving card.

How Do Balance Transfers Work?

Balance transfers allow an individual to move their credit card debt from one account to another. To complete a balance transfer, you must first apply for a credit card with a promotional 0% interest rate on balance transfers or use an offer on a card you already have. Remember that you will typically need good or excellent credit to qualify for the best offers, and balance transfers are usually not allowed between accounts from the same issuer.

To initiate a balance transfer, you will need to provide the issuer with information about the debt you wish to move, such as the issuer’s name, the amount of debt, and the account information. In some cases, balance transfers can also be initiated using convenience checks. However, it is important to carefully read the terms of these checks to understand if they will count as a balance transfer and what your interest rate will be.

Once the balance transfer is approved, which can take up to two weeks or longer, the issuer will pay off your old account directly. The balance, along with any balance transfer fees, will then be transferred to your new account. It is important to pay down the balance on your new account as soon as possible, especially during any introductory 0% APR period, in order to save on interest charges.

Good Balance Transfer Cards to Consider

When looking for a balance transfer credit card, it’s important to find one that will help you save money. The best balance transfer cards offer a 0% introductory APR for balance transfers, a $0 annual fee, and a $0 balance transfer fee. While it may be difficult to find a card that offers all three of these features, a card with no annual fee and a 0% introductory offer on balance transfers can still be very beneficial. It’s important to note that some 0% APR offers only apply to purchases, so it’s crucial to find a card that offers a 0% APR promotion on balance transfers. Keep in mind that interest charges can add up quickly and can be more costly than a one-time balance transfer fee, so it’s worth considering a card with a balance transfer fee if it also offers a 0% APR promotion on balance transfers.

Should I Do a Balance Transfer?

If you have a large balance that you need several months to pay off and you have good credit, a balance transfer may be a good option for you. A balance transfer credit card with a 0% introductory APR on balance transfers can help you save money on interest and make paying off your debt more manageable. However, if you can pay off your balance in a short amount of time or if you don’t qualify for a good 0% APR offer, it may be more cost-effective to pay off your debt as quickly as possible.

Alternatives to Balance Transfers

Alternatively, a personal loan could be a good option if you want a higher limit and are willing to pay some interest. You can pre-qualify for a personal loan to see how much you could borrow and what the interest rate would be before accepting an offer.

Conclusion

In conclusion, a balance transfer can be a useful financial maneuver for individuals looking to pay off high-interest credit card debt. By transferring the debt to a credit card with a promotional 0% interest rate on balance transfers, individuals may be able to pay off their debt without incurring additional interest charges. However, it is important to consider the fees associated with balance transfers and to carefully read the terms of any balance transfer offers. A balance transfer may be a good option for individuals with good credit and a large balance that will take several months to pay off, though other options such as paying off the debt as quickly as possible or taking out a personal loan may also be considered.

Questions Answered in this Article

What is a balance transfer? A balance transfer is a financial maneuver where an individual moves debt from one credit card account to another. By transferring high-interest debt to a credit card with a promotional 0% interest rate on balance transfers, an individual may be able to pay off their debt without incurring additional interest charges.
How do balance transfers work? To initiate a balance transfer, you will need to provide the issuer with information about the debt you wish to move, such as the issuer’s name, the amount of debt, and the account information. In some cases, balance transfers can also be initiated using convenience checks. The balance, along with any balance transfer fees, will then be transferred to your new account.
What are good balance transfer cards? The best balance transfer cards offer a 0% introductory APR for balance transfers, a $0 annual fee, and a $0 balance transfer fee. While it may be difficult to find a card that offers all three of these features, a card with no annual fee and a 0% introductory offer on balance transfers can still be very beneficial.
Should I do a balance transfer? If you have a large balance that you need several months to pay off and you have good credit, a balance transfer may be a good option for you. However, if you can pay off your balance in a short amount of time or if you don’t qualify for a good 0% APR offer, it may be more cost-effective to pay off your debt as quickly as possible.
What are some alternatives to balance transfers? A personal loan could be a good alternative to a balance transfer if you want a higher limit and are willing to pay some interest. You can pre-qualify for a personal loan to see how much you could borrow and what the interest rate would be before accepting an offer.