Balance Transfer

Balance Transfer Definition and Meaning

A balance transfer involves the movement of debt from one credit card to another. Credit card companies offer balance transfers to attract new customers and encourage them to open accounts. 

Balance transfers help you consolidate credit card debt so you have fewer payments to make. You may also save money if your balance transfer card features a lower interest rate.

Balance transfers don't change the amount of debt you owe—they simply move debt to a new card. Your debt might increase if your new card charges a balance transfer fee.

More on Balance Transfers

You've got some credit card debt, and you're ready to pay it off. You want an easier way to do it, so you decide to research balance transfers. 

A balance transfer happens when you move a credit card balance to a new card. You might transfer a single balance or several if you have multiple credit card debts. Balance transfers can streamline debt repayment and maybe even save a little money if you're able to reduce your interest rate.

Let's look at how balance transfers work and when it makes sense to use one. 

Balance Transfer: A Comprehensive Breakdown

Balance transfers let you move your credit card debt from one card to another. You can transfer balances to a new credit card or to one you already have. Here's how it works. 

• You apply for a new balance transfer card or choose one of your existing cards to transfer a balance to.

• You provide the credit card company with some details about the balances you want to transfer.

• The credit card company does the behind-the-scenes work to transfer those balances to your account.

Credit card companies can accept balance transfer requests online or over the phone. And sometimes they'll come to you to ask if you want to transfer a balance. 

For example, you might receive blank checks in the mail from your credit card company. You can use the checks to pay off balances you owe to other credit card issuers. That transfers the balance to the credit card company that sent you the checks. 

You may pay a fee for balance transfers. A typical balance transfer fee is 3% to 5% of the amount you transfer, though some credit card companies charge a flat dollar amount instead. The fee is added to the balance you transfer. 

Balance transfer cards often feature a low, introductory interest rate—as low as 0%. That rate is fixed for a number of months, typically six to 24. Once the promotional period ends, the regular annual percentage rate (APR) kicks in. 

Balance Transfer Real-Life Example

Let's say you owe $10,000 on three credit cards, with an average APR of 24%. You shop around and find three balance transfer offers that look attractive. Here's how the details work out. 

Card A offers the lowest payment, but you'll pay $500 for the balance transfer fee, versus $300 for Card B. Card C has no balance transfer fee but the monthly payment is nearly double what you'd pay with Card A. 

Next, you'll compare the interest savings. You'll save the most interest with Card A, even though it has the highest balance transfer fee. That's because you enjoy the longest interest-free period. You'll save the least with the card that offers 12 months at 0% interest.

Doing the math this way can help you see how different balance transfer scenarios play out. You can also compare monthly payments to see which introductory period length is the best fit for your budget plan.