Do you have a high balance on a credit card? A balance transfer to a new credit card can help you get a lower interest rate- in some cases even 0% interest for a period of time. You may have gotten an offer in the mail recently from a credit card company offering a balance transfer as well.
A balance transfer can be a great way to save on interest and is actually simple to understand: you apply for another credit card with a lower interest rate than your current credit card and your entire balance get moved to the new card with the lower rate.
How does a balance transfer work?
Typically, you can initiate a balance transfer by calling the new credit card company or by signing into your card portal online. To start the process, you will need the account number of the account that you wish to transfer along with the cash amount that you wish to transfer to the new card.
In most cases, the new credit card company will approve the full amount or just part of the total balance. This can be dependent on your credit limit and also on the company’s requirements for balance transfers.
After 2-3 weeks, the balance transfer will be complete. During that time, you will continue to make the required payments to your old credit card company until you get a notification from the new credit card company that the balance transfer has been completed.
Most credit card companies won’t let you complete a balance transfer between products from the same credit card company. For instance, you most likely cannot transfer funds from one Bank of America card to another Bank of America card.
The best balance transfer for you
Everybody’s financial situation is unique, and every balance transfer issuer is also unique. Taking the time to do a balance transfer only makes sense if you can save money compared to your current offer. Before you commit to a balance transfer, be sure to check:
- Interest rate: Cards designed for transfers tend to have a low-interest rate during the introductory period. 0% rates are the most common but be sure to ask the card issuer before signing.
- Fee: Almost all credit card companies will charge a 1-time fee for a balance transfer. Statistics show that this fee is roughly 3%-5% of the amount you wish to transfer. As an example, if you want to transfer $10,000 in credit card debt, the out of pocket fee you will pay can be $300-$500.
- Annual fee: This one speaks for itself, but just because a card has 0% introductory interest doesn’t mean it has no annual fee. See if you can find a balance transfer card with no annual fee for maximum savings.
- Introductory promo period: The 0% interest rate brought up in the first point tends to be temporary, be sure that the introductory rate will last long enough for you to pay off the debts, or else your interest rate may rise dramatically.
The point of a balance transfer is to pay off your “most expensive debt” as soon as possible. After a balance transfer, your sole financial focus should be to pay off the debt as soon as possible. But what about the old credit card? It’s best to keep your credit accounts open for as long as possible to help boost your credit score.
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