How Credit Card Balance Transfers Work

Full guidance About credit cards Uses

Moving outstanding debt on one credit card to another card—usually a new one—is a balance transfer. Credit card balance transfers are typically used by consumers who want to move the amount they owe to a credit card with a significantly lower promotional interest rate and better benefits, such as a rewards program to earn cash back or points for everyday spending.

What is a balance transfer credit card? Some credit card companies waive balance transfer fees (which typically range 3%–5% of the transfer amount) to entice cardholders. Often, they might also offer a promotional or introductory period of six to about 18 months where no interest is charged on the transferred sum.

Click on the link to know more about the credit cards balance transfer works: https://bumppy.com/tm/read-blog/50849_your-guide-to-balance-transfer-credit-card.html

KEY TAKEAWAYS

• Credit card balance transfers are typically used by consumers who want to save money by moving high-interest credit card debt to another credit card with a lower interest rate.
• Balance transfer credit card offers typically come with an interest-free introductory period of six to 18 months, though some are longer.
• Many credit transfers involve transfer fees and other conditions.
• Any violation of the cardholder agreement can potentially nullify the introductory APR and trigger penalty rates to be applied.

What to Look for in a Balance Transfer Card

Balance transfers can save money. Say you have a $5,000 balance on a credit card with a 20% annual percentage rate (APR). At that rate, carrying that balance and paying $250 a month would require 24 months to pay off and cost $1,134 in interest. After securing a 12-month 0% balance transfer on a new credit card and moving the $5,000 balance, the cardholder gets a year to pay it off with no interest and just a fee to transfer the balance.

But details and costs associated with these transfers are numerous. After the transfer, for example, you still have to make the minimum monthly payment on the card before the due date to keep that 0% rate. And pay attention to the interest rate. Does the new card have a regular interest rate that’s higher than the interest the balance incurs on your current card?

Potential Pitfalls

With accounts that involve a new credit card, the terms will require the cardholder to complete the balance transfer within a certain time (usually in the first two months) to receive the promotional rate. The day after that window closes, regular interest rates begin. Also, credit card companies do not allow existing customers to transfer balances to new accounts that they also issue.

Where to Look

If you are consulting a credit card comparison website, be aware that these sites typically get referral fees from the credit card companies when a customer applies for a card through the website and is approved. Also, some credit card companies have influenced the information that websites post about their cards in a way that distorts the picture of a card’s costs.