The term credit card balance transfer comes up a lot these days, especially with new credit card offers, but how do they work and are they good for your credit? Should you take advantage of a credit card balance transfer?
What is a Balance Transfer
A balance transfer is simply the process of moving a balance of one or more credit cards to the balance of another credit card, which usually has a lower APR. There are some cards that charge a fee to complete the transfer.
Most credit card providers will offer these types of accounts for new customers, even enticing them with special incentives to sign up, including interest-free period, low interest rates, loyalty points or rewards. Always read the fine print.
As Discover.com points out, you can only transfer an amount up to your credit limit on your new card.
Why Use a Balance Transfer
Using a credit card balance transfer is beneficial to those who may be paying higher interest rates on their other card(s), whereas the new card being used to transfer old balance(s) has a lower APR. For instance, if you have a credit card (“A”) that you pay 18% APR on, it may be a wise choice to take advantage of a credit card balance transfer if you’re able to get a much lower APR to pay off the old debt with (potentially) lower monthly payments.
Just be sure to read any fine print as these low interest rates can be tricky. Some may have an interest free period, or a low interest period, which can expire and suddenly shoot up to a much higher interest rate than you originally thought. In fact, some no to low-interest cards will even charge you interest for purchases. Always read the fine print!
You may be able to use a balance transfer for other accounts, not just credit cards. Check with the card issuer that is offering the balance transfer.
It may also be beneficial to those who want to make their monthly payments easier. If you currently have 4 cards that you’re making monthly payments on, you may want to do a balance transfer to turn those 4 payments into 1 monthly payments to make your life easier.
Who Qualifies for a Credit Card Balance Transfer
Most credit card issuers will require good to excellent credit in order to qualify for no to low interest rate balance transfer cards. Your best bet would be to check approval scores from sites such as CreditKarma to decide on whether you can qualify. Many users post their score when they are approved or rejected to help other consumers make a better decision.
