Balance Transfer

What are balance transfer credit cards?

A balance transfer card works like any other credit card: you make monthly payments on the debt you incur and the credit card company charges you interest until the debt is fully paid. The difference with balance transfer cards is that the debt comes from another credit card rather than from new purchases. You can use the balance transfer cards for future purchases, but usually the interest rate charged will be higher than the rate applied to a transfer. Credit card companies sometimes charge fees for a transfer, either as a flat rate or as a percentage of the balance.

What should you look for in balance transfer offers? >>

What should you look for in balance transfer offers?

The most important part of choosing a balance transfer offer is how long it will take you to pay off your balance. A credit card payoff calculator can be a big help when you are comparing balance transfer offers.

Here's what you need to compare:

• Introductory APR
• How long the introductory period lasts
• The fee to make the transfer, usually a flat fee or a percentage of the balance
• Interest rate for new purchases and for the balance after the introductory period ends

The longer you can keep an APR of zero percent, the better the card offer. First, you need to decide how much you can afford to pay toward your credit card each month. If you know you can pay off the balance within 12 months, then you can compare balance transfer offers by looking at which ones have better terms once the promotional period ends.

Balance transfer offers and your credit report >>

Balance transfer offers and your credit report

Check your credit score before applying for a balance transfer credit card. Even though balance transfer offers seem like a great idea if you're struggling with debt, they are typically credit cards for good credit or excellent credit. If your credit history has a few spots on it, you may need to improve your credit score by making on-time payments and reducing your credit card debt before you can qualify for a balance transfer card.

Be careful not to rack up more credit card debt on your old card after you transfer your balance. It can be tempting to spend more if you have a credit card with a few thousand dollars of available credit, but this will put you in a worse position because you will now have two credit cards to pay off instead of one.

How can I estimate my monthly payments with a balance transfer credit card? >>

How can I estimate my monthly payments with a balance transfer credit card?

When you apply for a balance transfer, you should carefully calculate how much you will need to pay each month in order to eliminate the balance entirely before the promotional period ends. For example, if you transfer $2,000 to a credit card with zero percent APR for 12 months and a balance transfer fee of 3 percent, you will need to pay $172 per month to pay off the balance (plus the $60 transfer fee) within 12 payments.

The primary reason to choose a balance transfer offer is to give yourself time to pay off the debt while getting relief from ongoing interest charges that add to that debt. Balance transfer credit cards frequently offer benefits such as cash back rewards, airline miles or low interest rates on new purchases.

To truly benefit from a balance transfer, you need to be disciplined enough to continue making payments of more than the minimum in order to pay off your credit card debt in full before the promotional period expires. You may be tempted to pay less when you see the minimum payment drop along with your balance, but you should take advantage of the zero percent interest or extremely low interest on your credit card to rid yourself of unwanted debt.