When Do They Make Sense?

Accumulating a significant balance on a high-APR credit card can be frustrating, to say the least. A significant portion of your monthly payment goes to interest, and you only see a slow chip away at your debt. In this case, a balance transfer may be a good idea. Many lenders and credit companies offer products with interest rates as low as 0% on balance transfers (based on your credit score) to attract new customers and clients.

Balance transfer fees are common, generally 3% of your total balance, although this can often be waived through special promotions. Many companies also limit the amount that you can transfer.

When Does a Balance Transfer Make Sense?

Suppose you can find a credit card with low-interest rates offered for a period in which you can pay your balance, little to no balance transfer fees, and a high credit limit to accommodate your balances. In that case, a balance transfer may be beneficial. When you do a balance transfer, more of your monthly payment is contributed to the principle, rather than that majority of your bill payment going toward interest.

In many cases, you need good or excellent credit history in order get attractive introductory offers. Although you may be eligible for a balance transfer if you apply and qualify for a new card, interest rates will generally be far above the 0 to 5 percent introductory rate many lenders advertise.

In general, balance transfers are not a good way to improve your credit score or avoid late payments. Balance transfers themselves can take up to two weeks before they are completed. During this time period payments will have to be maintained to the creditor that still holds your balance.

Next Steps Following a Balance Transfer

So you’ve qualified for a balance transfer and transferred your debt to your new low-interest account – now what do you do?

Ensure that the accounts that held your previous balances have been paid in full by receiving a statement from your old creditor. Once your balances have been successfully moved, it’s a good idea to keep these cards open. Charging very little on your cards and paying off the balances in full every month is a great way to give your credit score a boost while you pay down your debt. If you still have a remaining balance on your card, continue to make your payments in full and on time.

In the meantime, you’ll want to tackle your balance transfer debt prior to the introductory period expiring. If you make insufficient payments or fail to make them on time, your intro rate could disappear.

Conclusion

Before applying for a balance transfer and a new credit card it’s a good idea to review the creditor’s terms of service. Every credit company is required to disclose their full rate plan to the consumer. This documentation should tell you the amount owed at each credit level for bank-to-bank balance transfers and how long the advertised rate will last. Keep in mind that missing payments can void your introductory agreement and rate.

If you’re not sure if a balance transfer is a right move for you, don’t hesitate to call the issuing company you want for your balance transfer and ask questions. Before the call, it’s a good idea to get familiar with your credit score and be prepared to discuss any negative terms found on your credit report. With the right information, your credit card company’s representative should be able to give you detailed information about the offers available for your particular situation.