Credit Balance Transfers
You’ve probably received at least one in the mail: a letter inviting you to transfer your existing credit card balance to another card at a special low rate. You may have even seen these offers on TV, social media, or email. So what are balance transfer offers, and what are the benefits – and pitfalls – to look out for?
Your existing credit debt
If you’re like most Americans, you probably carry a balance on one or more credit cards and pay it off a little bit at a time. Many of these credit cards (including bank cards, retail cards, and gas cards) have high interest rates – up to 25% or more – and even higher for cash advances. Carrying a balance can cost you hundreds or even thousands of dollars a year in interest.
What’s the offer?
A credit balance transfer is simply transferring the balance from one credit card account to another, usually at a low or 0% interest rate for a short period of time (often with an introductory or balance transfer fee). You can “pay off” bank credit cards, retail store cards, gas cards, or even loans. Consolidating debt into one credit card can save time as well as money, since you’ll only make one payment every month, rather than several.
Read the fine print
A low-rate introductory offer can be tempting. However, there’s often a catch.
- The rates are usually for a short time (typically 6 to 18 months)
- Most require a transfer fee (often 3% to 5% of the transferred amount)
- The account may require additional fees (annual fees, transaction fees for cash advances and transactions in foreign countries, penalty fees for late or returned payments, etc.)
- Some low balance offers only apply to the transferred balance. The rate for new purchases may be much higher (as high as 18 to 25% in some cases).
The best offers do not require a fee, offer a low or 0% interest rate and for a longer period of time, and offer lower standard rates in addition to low introductory balance transfer rates.
Before accepting your offer
- Check your latest credit card statement to see your current rates for existing balances and cash advances
- Determine the fees involved in accepting the offer
- Understand what interest rates apply to which purchases and when the low rate expires
- Read the Cardholder Agreement or the Credit Card Disclosure statement to determine all the rates and fees associated with the offer
Will this affect your credit score?
Transferring the entire balance of an old card to a new one does not close out your old card. To do that, you’ll need to contact the old card’s processor. Keep in mind, however, that your credit score is not just affected by the amount of debt you carry, but also by total available credit. In some cases, it may be beneficial to keep the old account open but to cut up the card and just not use it. Also, avoid jumping from one offer to another repeatedly, as this can also negatively impact your credit score. Look for the best offer that will allow you to reduce debt while offering a low APR and low (or no) upfront fees.
If you decide to take advantage of a balance transfer offer, choose one with no transfer or annual fees, a low introductory rate for a longer term, and a low rate once the introductory period is over if you plan to use the card for additional purchases and cash advances.