Balance Transfers 101

/ BY / Credit Cards

If you carry a balance on your credit card, you've no doubt gotten or at least heard of offers for balance transfers. Credit card balance transfers can be an excellent way to save money if you currently have a high-interest credit card, but they can also end up costing you more money than they are really worth if you’re not careful.

What are balance transfers?

Credit card balance transfers are promotional deals from credit card companies that offer very little or no interest on balances transferred from other cards. Typically, the promotion runs a specific period of time, usually the first 6 to 18 months. From that point on, regular interest rates apply depending on the cardholder's credit score or the new card's fine print.

Benefits of balance transfers

Balance transfers are attractive option for people carrying balances on their credit cards for a number of reasons, including:

  • Lower monthly payments. When your credit card is 0% interest, your monthly payments are significantly lower.
  • Savings on interest. The amount you spend on interest over the life of your credit card can be staggering. Many online calculators, such as the one found here illustrate just how much money you are paying towards interest. When interest is nonexistent or low, even for a period of time, it allows you to save money on interest or pay off your debt faster.
  • Convenience. If you are transferring multiple balances, you also have the benefit of paying just one payment versus multiple credit card payments.

The downside of balance transfers

As with anything else, if it sounds too good to be true, it usually is. Despite potential savings, balance transfers can actually end up costing you as well. A few common things to look out for include:

  • Fees. Expect to pay a fee if you plan on transferring balances to a credit card. This is usually a flat fee or a percentage of the amount you transfer. More and more cards are also charging annual fees.
  • Length of time. Some people sign up for balance transfers thinking the low interest rate will apply until the balance is paid off. This is rarely if ever the case. Once the promotional period ends, the interest rate on the balance goes up. In some cases, this could be even higher than the interest rate on the original card.
  • Interest charged on new purchases. The zero or low interest rate only applies to the transferred balance. Any new purchase you make, even during the promotional period, is subject to the regular interest rates of the new card.
  • No significant savings. While you may save money through lower payments initially, if you continue to charge up your credit card, there will be no real savings in the long run.

Making balance transfers work for you

Balance transfers can be a great way to lower monthly payments and save money on interest, providing the jumpstart needed to pay off your debt load. In order to make balance transfers work for you, keep the following tips in mind:

  • Always read the fine print. Read and make sure you understand the fine print associated with your new card. Pay special attention to the interest rate after the promotional period and the rate charged to new purchases.
  • Never miss a payment. If you miss a payment, you forfeit the low interest rate and your new interest rate goes up to the default rate, which can be as high as nearly 30%.
  • Do the math. Make sure the savings are worth the fees that come with it.

Balance transfers can be an excellent way to save money if you do your research and know what you're agreeing to before you sign.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.