Why Do a Credit Card Balance Transfer, and How?

By Janey Osterlind. Last updated 8 July 2014. 4 comments
Photo: Anthrocopy

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I first considered a balance transfer last summer. A newly-minted MBA, I was also up to my eyeballs in debt (let's face it: I still am), but was hoping to responsibly pay it down, so I did the conscientious thing: I read up on which credit cards offered what benefits and chose the one that seemed to best suit my goals. Then, I transferred my existing credit card balance, which was accruing interest at nearly 13% per year, to one which would accrue no interest for 12 months (for a fee, of course, but we'll get to that). So why do a balance transfer, and how can you find the best deal out there? Why, so glad you asked!

(See also: The Best 0% Balance Transfer Credit Cards)

People generally transfer their credit card balances from one card to another when they are unhappy with their current card company's policies or practices, or if your credit card company notifies you that your interest rate or terms are changing. Prior to the signing of the Credit Card Accountability, Responsibility and Disclosure Act in May 2009, credit card companies could change any terms of service, at any time. Now, however, a card issuer must give you 45 days' advance notice prior to increasing your rate, changing pertinent fees, or making other significant changes. Should you receive a notice like this, you have the option to cancel the card, or you may want to keep it (for credit score or emergency purposes) and transfer the majority of your balance to a new, lower-rate card.

And how do you go about finding the best card for you? The Consumer Action's 2009 Credit Card Survey website is an excellent place to start, with lists of most popular credit cards with their terms at-a-glance, 0% balance transfer credit cards, and 0% introductory offer credit cards. As I said earlier, you should be aware of your goals when choosing a new card. A 0% balance transfer credit card may not be what you're looking for if you don't plan to pay off the balance within that 0% interest period. Instead, a card with a lower interest rate on an ongoing basis may cost you the least.

You might also want to check out our Credit Card Guide, which breaks down credit cards by categories like low interest, travel rewards, etc.

Before you rush off thinking, "Balance transfers are amazing! Sign me up for a new card immediately," it's probably a good idea to read this article regarding things to be attuned to prior to transferring a credit card balance. As this article so aptly points out, the devil is in the details. Before you commit to a balance transfer, make sure you understand the terms of the offer (the 0% rate may only apply if you also make a certain number of purchases, for example, all of which will accrue interest at the standard APR) and what the transfer fee is. Also be aware that it can be difficult to qualify for an attractive offer if you don't already have great credit. The article correctly notes that those with the largest balances generally stand to gain the most by transferring those balances to lower interest rate cards.

So now that you are equipped with the basic knowledge of how to do a balance transfer, consider whether one might benefit you. A little homework and the right card could save you quite a bit in interest payments!

Have you had a positive/negative experience with credit card balance transfers? Share your thoughts on the matter!

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

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Guest's picture
Andrew

Awesome post on a topic I didn't know much about previously. Never seriously considered credit card balance transfers but their are definitely some instances where it makes sense.

Guest's picture
KarenJ

I was lucky enough to have the option to choose a low apr for the balance of the card. My husband had made a mistake and borrowed a lot of money for a business investment, not realizing that the introductory APR was for only three months. When we realized what had happened, I transferred the remaining balance onto two cards at low (under 6%) for the life of the balance. There is no way I could have paid off the balance during the introductory rate had I chosen the 0% option. Now all my debt is below 6% and I make great progress paying it down every month. People need to realize that a balance transfer fee paid several times can reduce your savings substantially. Also, playing the credit card transfer game too much can have a negative effect on your credit.

Janey Osterlind's picture

Great comments! I completely agree that it's important to realize the balance transfer fee should be less than the savings you expect to incur from having a lower interest rate on the new card, and that doing numerous balance transfers can both impact your credit and cost you more in the long run. Thanks for sharing!

Guest's picture
Steve

Balance Transfers are great, but you just have to understand what the fee is for the transaction of your balance over to the new card. Reviewing a good credit card comparison site is a good way to find the best credit cards for the balance transfers. An example of a credit card comparison site is CreditCardWave.com