Credit Center: Basics of Credit Card Balance Transfers

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Here's how they work and how you can save...

Balance transfers allow borrowers to pay off credit cards, auto loans, or other credit lines by moving their existing debt to a newly opened credit card account - ideally, one with better terms and a lower interest rate than their existing account. Balance transfers can be a great refinancing or debt consolidation tool if you have good credit and your debt is still manageable.

Balance transfers are usually available when you apply for a credit card and are often included separately on your monthly credit card statement. With fierce competition in the credit industry, banks and other lenders will compete for your business - so be sure to check online where you can find some of the best offers available. >>>

Types of Balance Transfers

There are several types of rate structures for balance transfers. You can choose from three types of offers: purchase, teaser and fixed rate.

Purchase Rate Offers: Your transferred balance will be subject to the same interest rate that applies to the purchases you make.
Teaser Rate Offers: A low interest rate applies to the transferred balance for a limited time. The rate will return to the original purchase rate when the 'intro period' ends - typically from 6 to 15 months. The best teaser rate offers provide 0% interest for 12 months or more.
Fixed Rate for Life Offers: A low interest rate applies until the transferred balance is paid in full, as long as the account is paid on time. Usually the rate's a bit higher than a teaser offer, but you will still save a significant amount over the standard credit card agreement.

Balance Transfer Fees & Interest Rates

Most credit card balance transfers are subject to a transaction fee that varies from 1-5% of the transfer amount. Typically, credit card companies charge about 3% of the transfer, with a limit of $50-$75.

Also, be aware that 'default clauses' allow credit card companies to raise your interest rate if you don't abide by the terms of your credit card agreement. Be wary of broad default clauses that give the credit card company the option of raising your rate at their discretion. It's common for them to raise your rate if you make a late payment more than twice in six months. But steer clear of cards that can raise your rate if they determine your account 'carries risk'.

More About Balance Transfers

A balance transfer can take several weeks to post. So it's imperative that you continue to pay the minimum payment on the credit card you're transferring from or you may end up paying fees for a missed payment if the transfer is posted after your payment due date.

Creditors are banking on consumer's who fail to responsibly pay their credit card bill on time due to the increase in rates and fees when you default on your account. But if you’re a wise consumer, and stay on top of your monthly payments, you can win BIG in the balance transfer game.

See a complete list of balance transfer & 0% interest credit cards >

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