Credit Cards

What Is A Credit Card Balance Transfer And How Does It Work? (The Fees, Terms, And Risks Of Balance Transfers)

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Last updated on September 3, 2020
credit card balance transfer

For those who have high credit card balances, a credit card balance transfer can offer some relief to reduce interest and get out of debt faster. With the right new product, cardholders can transfer their bills from one place to another with much more favorable terms.

But if you’ve never done a credit card balance transfer, the whole process may feel foreign, and leave you with more questions than answers.

  • How do you start looking for a credit card for a balance transfer?
  • Do you still have to pay your old credit card if you move your debt over?
  • How much time do you have to pay off the balance transfer?

If the idea of a balance transfer is overwhelming and unfamiliar, it’s time to do some homework and determine if it’s the right move for your lifestyle. Here’s everything you need to know about making balance transfers.

What is a Credit Card Balance Transfer?

Like the name suggests, a credit card balance transfer allows you to move a debt from one credit card to another. In theory, you can transfer a balance between any two credit cards in order to take advantage of lower interest rates or other promotions.

There are a whole category of balance transfer credit cards that are designed to help cardholders reduce their debt by offering advantageous terms for rolling over their amount due. These cards usually offer a low introductory APR (often below 8%) for a limited amount of time, which can help them save money on interest and pay down their principal faster. As a convenience, these credit cards often let individuals ask for a balance transfer as they finalize their application!

What Are the Terms of a Credit Card Balance Transfer?

If you are approved for a balance transfer credit card, you will usually have a limited amount of time to request moving debt from one card to another, in order to take advantage of the promotional interest rate. This can range from when the card is opened, to an amount of time after the account is opened – usually 90 days or less.

Once complete, the amount of debt you moved from one card to another will have a discounted APR for a set period of time, which can range from six months to two years. The goal is to pay down your entire debt during the promotional period, minimizing the amount of money you will pay on interest. If you don’t pay down the debt during the promotional period, anything left over will be subject to the card’s regular APR, which usually hovers between 14% and 15%.

Are Credit Card Balance Transfers Instant?

Although credit card balance transfers offer relief from high interest, they are not necessarily instantaneous. In some cases, moving debt from an old card to a new card can take between 15 and 20 days. During that time, you will still have to pay your current credit card bills to prevent a negative mark for missing a payment.

Before you start a balance transfer, be sure to understand how long it will take to make the move. You will have to plan around those dates, and make sure to make payments on their due dates as the transfer completes.

Do Credit Card Balance Transfers Have Fees?

In nearly all credit card balance transfer cases, there will be some fees associated with the move. These balance transfer fees can add between 3% and 5% to your debt.

For example: If you are moving $5,000 of debt from one card to another, and your balance transfer card charges a 5% fee, the new card will charge $250 in fees. Instead of paying it in cash, the balance transfer fees will be added to your new balance, making your total due $5,250 on the new card.

As you do your research on credit card balance transfers, be sure to look at how the fees will affect your balance. If your savings on interest or ability to pay off the debt makes it easier to outweigh the fees, it might be a prudent move to apply for a new credit product.

Is a Credit Card Balance Transfer Right for Me?

Applying for a credit card balance transfer isn’t right for everyone. As you do your research to determine if it’s the best opportunity for your finances, consider how the following situations apply to you.

The most important question to ask is if you can actually pay off the credit card balance transfer during the promotional period. Because these time-limited windows offer a lower interest rate, it’s assumed that you will pay off your entire debt during that window. If you can’t pay off your debt, or will only make minimum payments during that time, a balance transfer credit card might not be right for you.

The secondary factor is your spending habits, and having the discipline to not use that card as you pay down your debt. Balance transfer credit cards effectively have two different interest rates: one for the debt you moved, and one for new charges to the account. Spending on the card will add to your balance, and can affect how your promotional balance is paid down over time. If you can’t help yourself from spending on your card, then you may want to come up with a different strategy to pay down cards over time.

When done right, credit card balance transfers can help individuals knock out debt faster than making payments on their current credit cards. By understanding how balance transfers work, you can determine if it’s the right move for your overall personal finance strategy.

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