Understanding Credit Card Balance Transfers

By Karen Y. Larkin

Balance transfers can save you money and shorten the length of time it takes to pay off credit card debt. This is especially true if you have a lot of credit cards, or ones with high rates -- like most store credit cards. The basic premise is simple. You use a low-interest credit card to pay off one with a higher interest. The balance of the high-interest card goes to zero and the low-interest balance increases by the amount you transferred. You can even transfer multiple balances to one card, as long as you stay below your credit limit.

Balance Transfers Explained

Simply put, a balance transfer is a loan from one credit company that allows you to pay off existing debts you owe to another companies. Banks want you to open new credit card accounts, and they want you to carry revolving balances on your cards. To attract you, many credit card issuers offer an introductory period with zero percent interest, usually for six, 12, or even 18 months. This is essentially an interest-free loan that gives you time to pay down your balance before the account begins to accrue interest.

In addition to consolidating your debt, you can simplify your finances by trading multiple credit card payments for a single, monthly payment to just one account.

If it will take you longer than a year to pay off your consolidated debt, look for a card that offers a low interest rate after the introductory period is over.

Five Ways to Transfer a Balance

Transferring a balance can happen in a variety of ways.

Sometimes when you apply for a new account, the application asks whether you want to transfer a balance from another account. Space is provided for you to enter the account number, amount, and payment address of the balance you want to transfer. In this scenario your new credit card company will work directly with your old credit card company to process the balance transfer for you.
When you have available credit on an existing card, you may receive a balance transfer offer in the mail. Just fill out the and return the form, indicating how much you want to pay, and to whom, and the company issuing the offer will transfer the balance for you.
Your existing credit card company may send you checks in the mail when you have available credit. Then you can use the checks to submit payments to your other accounts. Use extra caution with this method, because:
- Sometimes the card issuer making the offer treats these checks like balance transfers, but sometimes they treat them like cash advances. Cash advances may come with hefty fees, so read the fine print carefully.
- Make sure not to exceed your credit limit on the account issuing the offer.
Balance transfer offers may already be waiting for you online. Just log into your existing credit card accounts. If you have an account in good standing, with available credit, transferring a balance may be only a few clicks away.
Call customer service for your existing account. If your account is in good standing, and you have available credit, most customer service reps should be able to assist you in making a balance transfer. They may even be able to raise your credit limit to accommodate a larger transfer.

Factors to Consider

Before you transfer a balance, be sure to consider the following:

Fees: Interest-free doesn't necessarily mean fee-free, cautions Bill Hardekoph, CEO of LowCards.com, a consumer education website designed to help consumers search for the best credit card. Most balance transfers cost around three percent of the balance being transferred. For example, if you transfer $5000, expect to pay a transfer fee of $150. Be sure to anticipate the fee, lest you exceed your credit limit.
Grace Period: Mr. Hardekoph also cautions that there is no payment grace period on transferred balances. A late payment could trigger the addition of both fees and interest.
Rewards: You should not expect to receive reward points or travel miles on balance transfers.
Transferable Balances: Not all balances can be transferred to all cards. A recent Card Hub survey reports that some cards will accept transfers only from other credit cards, while others will accept student loan or even payday loan balances.
Credit Score: Mr. Hardekoph explains that the credit limit, interest rate, and any balance transfers offered to you are directly related to your credit rating. He recommends using the credit limits on your current cards as a barometer for the credit limit you are likely to be offered on your new account. For example, if you have three credit cards, each with limits of $200 to $500, it is unlikely you will receive a credit line of $3,000 on your new account.
New Purchases: Depending on your credit card limit, you may be able to charge purchases to your new card, in addition to your transferred balance. That's not necessarily a good thing, however, warns Mr. Hardekoph. Interest rates may begin to accrue immediately on new purchases; or, payments may be applied against those purchases ahead of your transferred balance.
Verify Transfers: Keep an eye on your old credit card balances for at least a month. Mr. Hardekoph advises, "It can take up to four weeks for the balance to be transferred. Continue to make all required payments until you confirm that the balance transfers were made. Multiple balance transfers will process in the order they are requested on the application."
Terms and Conditions: Read your credit terms and conditions carefully to ensure you maximize the full benefit of your balance transfer.

Finding Balance Transfers

Your next balance transfer may be as near as your mailbox. Many credit card companies send balance transfer offers in the mail or via email. If you don't happen to receive such an offer just when you need one, there are several sources online. Popular credit cards offering balance transfers include:

Citi Balance Transfer Credit Cards: Citicards offers eight cards with balance transfer options, including one with no interest for 18 months on transferred balances. Some have standard interest rates lower than 12 percent.
Slate® From Chase: This card offers no interest for 15 months on both balance transfers and purchases. When interest does begin to accrue, rates are as low as 13 percent.
Discover it®: Balance transfers are interest-free for 14 months, but carry a three percent transfer fee. After the introductory period, interest rates start at 11 percent. Make sure to use the balance transfer feature, and not the cash advance feature. Cash advances carry a five percent fee and an interest rate of 25 percent.
BankAmericard® Visa®: When you make balance transfers or purchases within 60 days of opening your account, no interest is charged for 15 months. After that, interest rates start at 11 percent. Bank of America charges a three percent fee on balance transfers.

If the above options don't appeal to you, research balance transfer offers to find the best option for you.

Make Smart Decisions

While low or no interest balance transfers can help you work your way out of credit card debt, it's better not to acquire high interest debt in the first place. A good rule of thumb is not to charge things that you can't pay for in one billing cycle. Emergencies happen, however, and sometimes you must carry a balance. A parting piece of advice from Mr. Hardekoph is to always keep revolving credit card balances low enough that you can pay them off in one year.