What Are Balance Transfers?

By Jackie Beck   Updated 07/23/2021 at 11:01 am

Balance transfers are a type of offer from credit card companies, banks, or credit unions. They let you move debt from one account to another.

Usually balance transfers are used to move high interest credit card debt to a new, low interest credit card. But they can also be used to move other types of loans and debt to a credit card.

They also can be a way to consolidate multiple debts without taking out a debt consolidation loan.

The Idea Behind Balance Transfers

The idea behind doing a balance transfer is to reduce the interest rate you’re paying on credit card debt. That way you can pay it off faster or easier. In that sense, they can offer some relief from expensive debt.

People normally try to get 0% balance transfer offers. That way their whole monthly payment goes toward reducing debt. (Instead of a big chunk of it going to pay interest.)

For example, if your current credit card charges 16.17% interest and you have a $5,000 balance, transferring that to a 0% card could save you a bundle. IF everything goes well.

But there are some downsides too, especially if you don’t repay the full balance before the intro period ends. Make sure to understand the pros and cons of balance transfers before applying for one.

What to Look for in a Balance Transfer Card

Lately 0% balance transfers are getting harder to find. But you if you’re looking to do one you should still consider good balance transfer cards that:

  • offer 0% or low interest rates
  • have a long introductory period (where you get the lower interest rates)
  • have low balance transfer fees
  • you are likely to be approved for based on your credit scores
  • do not have a penalty APR

Make sure that the card you choose has terms and rates that are good enough to offset what it will cost in fees.

How to Do a Balance Transfer

You can do this by transferring the amount you owe from one credit card to a low or no interest rate card. The steps to do a balance transfer are:

  1. Get an idea of your credit score so you know if you’re likely to qualify. (You usually need good or excellent credit.)
  2. Research to find the best balance transfer offers.
  3. Make sure you understand the terms and fees involved, and that you avoid deceptive offers.
  4. Apply for the offer you want.
  5. If you are approved, start the balance transfer within the required timeframe. Depending on the card, you may do that online, by calling, or with balance transfer convenience checks.
  6. Continue paying the minimum payment on your old card while you wait for the transfer to happen
  7. Once it goes through, be sure to make timely payments to the new card.
  8. To avoid new debt, stop using the old card and do not use the new one for anything else.

Finally, if your goal is to get out of debt, use the debt snowball method.

Common Questions Related to Balance Transfers

This article explains what a balance transfer is and how to do one. But people sometimes have related questions too.

What Happens to Your Old Credit Card’s Balance

You may be wondering what happens to your old card when you transfer the balance. The short answer is usually nothing.

Your old card will remain open until you or the credit card company closes it. It’ll just no longer have a balance on it once the transfer goes through. (Assuming you transfer the whole amount.)

Again though, you’ll still need to make your minimum payment on the old card until the balance transfers to the new one. Since that can take some time, be sure you don’t miss a payment while you’re waiting for it to finish.

Multiple Transfers

Sometimes people want to do multiple balance transfers, which could mean one of two things.

In one case, maybe the intro period is up and you want to avoid the new, higher interest rate. You can look for another offer and repeat the process. Just be aware that it affects your credit each time you apply for a credit card or other loan. It’s best to pay them off before the intro period expires if possible.

In another case, you may want to transfer more than one debt to a single new card. Whether that’s possible depends on the card you’ve chosen. So if that’s your goal, make sure to choose a card that allows it. You’ll usually have to complete all of the transfers within a set time period.

The Bottom Line

The bottom line is that balance transfers are a way to move debt around from one account to another.

They can be used as part of a larger debt reduction strategy, but shouldn’t be the only tool you use. Be sure to avoid that pitfalls that come with them as well.

What balance transfers are and how they work

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