Balance Transfer Credit Cards: Understanding the Basics
A balance transfer credit card can help you manage existing credit card debt by moving it to a new card, often with a lower interest rate for a limited time. When used carefully, it can make repayment more predictable and potentially reduce interest costs. This guide explains how balance transfers work, what fees to expect, and how to plan payments.
What is a Balance Transfer?
A balance transfer is the process of moving a balance from one credit card to another. People often do this to take advantage of a lower APR or a promotional introductory APR period. After the transfer is completed, you owe the transferred amount on the new card instead of the old one.
Intro APR Periods and What They Mean
Some cards offer a promotional APR for balance transfers that lasts for a set number of months. If you pay the transferred balance down during this window, you may reduce the interest you would have paid on a higher-rate card. After the promotional period ends, the regular APR typically applies to any remaining balance.
Balance Transfer Fees
Many balance transfers include a one-time fee. A common range is a percentage of the amount transferred (for example, 3% to 5%), and the fee is usually added to the balance on the new card. Because of this, it’s important to compare the transfer fee against the interest savings you expect to gain.
Steps for Doing a Balance Transfer
First, confirm the card’s terms: promotional length, APR after the promotion, transfer fees, and the deadline for initiating a transfer. Next, request the transfer through the new issuer. Keep paying at least the minimum on your old card until you can confirm the transfer is complete and the old balance is paid off. Save confirmation details for your records and monitor both accounts during the transition.
Creating a Simple Repayment Plan
A practical approach is to divide your transferred balance (plus any transfer fee) by the number of months in the promotional period. That number becomes a target monthly payment to help you pay the balance down on schedule. Automatic payments can help you stay consistent, and avoiding new debt during the payoff period often makes the plan easier to follow.
