A balance transfer is the transfer of outstanding debt from one credit card to other, usually a new one. Customers who want to transfer the money they owe to a credit card with a considerably lower introductory interest rate and better advantages, including a rewards program to earn some cash back or points for everyday spending, frequently use credit card balance transfers.
What balance transfer credit card? Some credit card firms remove balance transfer costs, which generally run between 3% and 5% of the transferred amount, to attract cardholders. They frequently also provide an introductory or promotional term of 6 to 18 months, during which no interest is incurred on the transfer amount.
Carrying a monthly balance (even with 0% interest) requires you to make on-time transactions of at least the minimum amount due on the transfer or for any new purchases. Carrying a monthly balance is what it takes to transfer a balance. Otherwise, you risk losing the introductory APR and any applicable grace period on your transferred balances and being subject to high-interest rates (and possibly penalty APRs) on new deals.
Smart and diligent customers can take advantage of the balance transfer offers and avoid excessive interest rates while paying off debt, but you must carefully review these offers.
What to Look for in Balance Transfer Credit Cards
Balance transfer offers can save money. Consider that you have a balance of $5,000 on a credit card with a 20% APR (annual percentage rate). At that APR, carrying that sum and making a monthly payment of $250 would take 24 months to pay off and result in interest charges of $1,134. The cardholder gets a year to pay off the $5,000 balance with no interest and simply a balance transfer fee after receiving a 1-year 0% balance transfer on a new credit card.
However, there are a lot of complexities and expenses related to these transfers. For instance, to maintain the 0% rate after the transfer, you must still pay the minimum amount due on the card by the due date. Consider the interest rate as well.
How do credit card balance transfers work?
Once you've been permitted to use a card with a 0% balance transfer 24 months offer, find out if the interest rate is fixed or subject to a credit check. The next step is choosing which balance to transfer, starting with cards having the highest interest rates.
Next, determine the transfer cost, generally between $30 and $50 per $1,000 moved (or between 3 and 5 %). Is the fee subject to a cap? If not, it might be advantageous to transfer greater funds. Before starting the transfer, check the credit card limit on your new credit card. Balance-transfer costs count toward that limit, and the requested balance transfer can't override the credit line that is currently open.
How much money can you save with 0% balance transfer offers?
If you're paying off a sizable balance, a 0 percent balance transfer offer could result in savings of up to several hundred dollars.
According to Experian's 2021 State of the Credit report, the balance on an average credit card has increased to $5,525. Based on the following criteria, here is how much you may save by moving a $5,525 credit card balance to one of our top balance transfer credit cards:
- The $5,525 debt would be paid off during the introductory offer period, and the balance transfer charge would be paid upfront.
- The interest you would pay on your existing card at a 20 percent APR, less the balance transfer charge, is used to compare the potential savings with each card.
How to request a 0% Balance Transfer offer?
Even though it is a balance transfer, one credit card pays off another. The process of requesting a balance transfer comprises:
Balance transfer Checks
The cardholder receives checks from the new card issuer (or the card issuer to whom the amount is being transferred). The cardholder writes a check payable to the desired card firm. Some credit card issuers allow cardholders to make checks payable to themselves but double verify that this won't be viewed as a cash advance.
Online or Phone Transfers
The credit card company to which the cardholder transfers the balance receives the account details and the amount, and that company organizes the transfer of funds to balance the account.
Watch out for the Grace Period
Sometimes those who take advantage of the balance transfer offers to find themselves responsible for unforeseen interest fees. The issue is that carrying a monthly amount when transferring a balance is problematic. Even with a card with a 0% introductory APR, carrying a balance by only paying the minimum payment owed each month can result in losing the card's grace period and introductory APR, as well as unexpected interest charges on new purchases.
The grace period is between the end of the card payment cycle and the bill's due date. A cardholder is not obliged to pay interest on new purchases during that time (often 25 days, while the law requires at least 21 days).
Bottom Line
Balance transfer offers on a credit card help you pay off debt more quickly and pay less interest while avoiding fees and affecting your credit score. Using a new card's 0% introductory interest rate offer could be smart if you understand the terms in detail, do the calculations before applying, and create a practical repayment plan. Finding the best balance transfer card offer for you should be easy as long as you do your research.
