Balance Transfer Credit Cards 101

September 9, 2010

Balance transfer credit cards are not a permanent solution to paying off your credit card balance but 0% interest credit cards can offer a period of 0% APR to help you pay off some of your principal instead of interest.

Balance Transfer Credit Card Basics

Balance transfer card offers provide the opportunity for you to transfer a balance from one credit card to another. Credit card issuers offer special terms for balance transfers in an effort to entice you to move your debt so that they have a chance to earn interest on it.

The balance transfer works one of two ways:

1) You can list the account numbers and amounts you want to transfer at the time you fill out the credit card application and sign up for the balance transfer offer. If you are not approved for an amount that covers the entire balance transfer, the issuer will likely transfer the balance (or a portion of it) in the first position on your application.

2) You make the transfer after you are approved for the new credit card. Many balance transfer offers include a provision that allows you to take advantage of the special terms within a certain time period.

0% Credit Cards

When you are transferring balances, your new card issuer pays off the balances on your other credit cards, and then puts that money on your new card. You still have to pay it off, but balance transfer cards normally have low introductory rates or even 0% APR that allow you to put more of your payment toward the principal, so you pay down your debt faster.

Credit Card Debt Consolidation

A credit card balance transfer can be helpful if you carry a balance on a credit card with a high rate. You can move your balance to a lower rate card, and save money in interest fees. Additionally, those who want to consolidate debt can use a balance transfer credit card to pay off smaller loan amounts, resulting in a situation where fewer debt payments are made each month.

Balance Transfer Card Benefits

The main benefit associated with a balance transfer is the lower interest rate. You might end up with a low credit card APR of for the life of the balance, providing you with the opportunity to pay down your debt faster.

The most coveted balance transfers, though, are 0% APR introductory rates. With this type of offer, you are charged no interest on balance transfers for a set period of time, usually six to 12 months. When you use a 0% balance transfer to consolidate debt, you can create a plan to pay off your debt faster, since the entire payment goes to the principal. It’s obviously the most effective if you can pay off your balance within the introductory period.

Credit Card Balance Transfer Drawbacks

There are some drawbacks and expenses associated with balance transfers; here are some things to consider before transferring balances:

  • If you miss a payment, or are late, you will lose your introductory rate and you could end up at the default rate — as high as 29.9%.
  • There can be balance transfer fees associated with your move. Make sure the interest savings offset the 3% to 5% premium you could pay for transferring a balance.
  • Some credit cards are resurrecting annual fees. Be sure that your savings offset the annual fee. Some cards will waive the first year’s fee, or waive the fee if you spend a certain amount of money each year. Look for balance transfer cards with low or no annual fees.

Most importantly, resist the temptation to whip out one of your newly-paid-off cards and start using it again. Remember that the debt is still owed, just on a new card. Take advantage of 0% credit card offer and pay down your debt instead of adding to it.


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Miranda writes about personal finance almost every day. An experienced freelance writer, she's covered your money online and in print from every angle and is always looking for new ones.

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6 Responses to Balance Transfer Credit Cards 101

  • Dan - BankVibe

    Balance transfer cards are great for the right (disciplined) person. If you are serious about getting rid of your debt AND have the means to wipe away your debt within a year then these cards are ideal. My advice would be look for a card with an intro 0% APR period (as you mentioned). There are a bunch of them. Make sure the fees associated with your transfer are relatively low (anything around 3% is good). And be sure you’ve done the math and can make the payments each month that will leave you with 0 debt after the year is over.


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