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Overview
What Is a Balance Transfer on a Credit Card?It is always a good idea to pay your credit card balances off each month, but this is not always possible. Many people accrue a larger and larger balance, which eventually becomes nearly impossible to pay off entirely. While paying the balance is difficult enough, when the interest rates are 15 percent or more, the amount of interest paid yearly can amount to thousands of dollars. Occasionally, balance transfers can help bring payments down to a more reasonable level.
Features
Credit card companies offer balance transfers to customers with a good credit score. Upon approval, the credit card company will send enough money to your previous credit card company to pay off the balance of that card. Your new balance with your new credit card company generally has a very low introductory annual percentage rate, which saves you a lot of money on interest fees over the course of your payment schedule.
Considerations
It is important to know that the introductory interest rate goes up substantially if you make your payment late. Sometimes the interest rate can go from 0 percent to nearly 30 percent overnight. Thus, it is imperative that you make your payments on time, or even early. This is particularly important if you pay your credit card bills online through your bank, where there is usually a 3- or 4-day lapse between the time you pay your bill and the time the company receives your payment. Also be aware that you may incur a late fee if you pay late.
Warning
Some credit cards will offer low introductory rates on your balance transfers, but not on purchases you make with the card after the transfer. Additionally, most times you make a payment on your card, the payment will go toward your balance transfer balance rather than your new purchases balance which can add up to lots of interest payments over time. When you use a balance transfer to pay off your balance, it is a good idea to no longer use the credit card for regular purchases. This is particularly true of cards like Discover card, which offers a 0 percent APR balance for the life of the card. They are hoping that people continue to use the card for everyday purchases, which get hit with a high interest rate for many years to come.
Fees
There are often transaction fees associated with a balance transfer. These can be up to 5 percent of the balance transfer, although some companies cap these at a certain amount. These fees will usually appear on your first statement. You have to balance between whether you are going to save more money that you will lose on the balance transfer fees. Usually this is only the case if you have thousands of dollars on your credit card.
Comparisons
There are websites that allow you to compare offers between credit cards (see Resources). Visit these to learn all you can about choosing a credit card with the balance transfer option that works best for you.
