Balance transfers can be a great way to pay off your debt at a lower interest rate. But before applying for a credit card balance transfer, make sure you understand how balance transfers work.
What is a balance transfer?
A credit Card balance transfer is a type of credit card transaction where you pay the balance of one credit card with another credit card, usually with a credit card of another credit card issuer.
When you sign up for your credit card, you can enter the balance you want to transfer, including the account number and the transfer amount. Your new credit card issuer will begin the balance transfer process if your order is approved and your credit limit is high enough.
One of the best reasons to transfer balances is to take advantage of a lower interest rate. However, it is not a good idea to transfer credit card balances just to avoid paying your credit card bill. This can be expensive and lead to credit card debt.
Important features of a credit card balance transfer
The credit card you choose must allow balance transfers. Look through the credit card terms. If it lists an APR and fee for balance transfers, you can transfer a balance.
If these costs are not listed, it is safe to assume that you cannot transfer balances to this credit card. You can call the cards customer service to confirm that you are especially interested in that particular credit card.
There are two APRs to consider with balance transfer cards: the introductory promotional rate and the regular rate that will apply after the introductory period.
For example, the MBNA True Line Mastercard offers a 0% promotional balance transfer for 12 months. Balance transfer rates increase to 12.99% after the promotional period.
Compare the post-promo interest rate with the interest rate on your current credit card. Make sure you understand what you need to do to qualify for the promotional interest rate.
Finally, make sure you know the balance transfer fee. This fee is automatically added when you transfer your balance. The lower the rate, the better.
Look for savings
Not only does the balance transfer credit card play in if you do a balance transfer, but you also need to know that you actually save money by doing a balance transfer. Using a balance transfer calculator can help you figure this out easily. Be sure to consider the balance transfer fee and any annual fees as you weigh the balance transfer cost.
You can maximize your balance transfer savings by paying the transfer in full during the promotional period.
Credit card balance transfers can affect your credit score
Transferring credit card balances can affect your credit score. That’s because high credit card balances indicate that you could have more debt than you can handle. Before doing a credit card balance transfer, consider how it might affect your credit score. However, keep in mind that your credit score can recover when you pay off the balance.
Make sure the balance transfer is successful
A balance transfer is not as quick as making a credit card purchase. It may take a few days to several weeks for the transfer to be successful. Continue making regular monthly payments to your old credit card until you receive a billing statement with a balance of $0.
Do not ignore your billing statements under the assumption that your balance has been transferred. If there is an error with the balance transfer and you ignore your old credit card billing statements, you could miss a payment and end up with a late fee and a late entry on your credit report.
In conclusion
If you have transferred the balance to a credit card with a low introductory interest rate, it is best to repay it within the promotional period. This way, you will save more money on interest rates.