What Are Balance Transfer Credit Cards?

By Mary White

  • Overview

    Do you want to reduce the amount of money you are paying on credit card interest but don't have the resources to do away with your credit card debt entirely? Do you feel like you'll never be able to get out of credit card debt with your current revolving credit account? If so, taking advantage of credit card balance transfer offers might be a good idea--so long as you know the pros and cons involved.
  • Benefits

    If you're carrying a balance on a credit cared, it's likely that a large portion of the payment you make every month is going toward interest. One way that you can reduce the amount of money that is being applied to interest is to transfer your existing credit card balance to a new credit card account with a lower interest rate. By going from a standard interest rate to the lower interest rate available with a balance transfer credit card, you can save a significant amount of money and make progress toward getting out of debt.
  • Function

    The reason that credit card companies offer low introductory rates for balance transfers is to attract new customers. Credit card providers assume that you'll continue to make purchases with your credit card, resulting in additional purchase transaction revenue as soon as you open the account and more interest income once the low introductory rate period has passed.

  • Time Frame

    Low interest rates available via balance transfers are typically available only for a limited time. Some balance transfer credit cards offer low rates for periods as short as 90 days; others offer reduced interest fees for up to a year. In a few cases, credit card companies offer a low annual percentage rate on transferred balances for the life of the account, with higher rates applying to new purchases.
  • Considerations

    Don't assume that a new credit card account with a low or zero interest rate for balance transfers offers the same rate for new purchases. In many cases, balance transfer rates apply only to balances moved to the new account from other credit cards. A different interest rate applies to new purchases.
  • Warnings

    A balance transfer credit card will only help you save money if you don't continue to accrue additional debt. When you move a balance from a high-interest credit card to a lower-fee balance transfer card, don't continue to make charges that you cannot pay in full on the original account. Making charges on both cards will likely mean that you'll end up even more deeply in debt than you were to start with. It may be best to close the original account so there's no temptation to use it.
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