In this article, we’re answering the question, “What is a balance transfer?”
In short, it refers to the transfer of an outstanding credit balance from one credit card provider to another.
We’ll discuss everything you need to know about these transfers in the sections below. Plus, we’ll also be answering important questions about the topic that we receive from our members.
This article is part of our free series on US credit cards and banking, including how to get a US-issued credit card, which you can access by clicking here right now.
Alternatively, if you’re looking for information on credit card numbers, specifically if credit cards have routing numbers, you can access our link covering this topic here.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Is a Balance Transfer?
- How Does a Balance Transfer Work?
- Is There a Balance Transfer Fee?
- Frequently Asked Questions
- Ready to Open Accounts With Banks in the USA?
What Is a Balance Transfer?
A balance transfer is what you might call a “debt rearrangement”. In short, it involves individuals moving their outstanding balance from one credit card to another credit card. In most cases, a balance transfer occurs when a cardholder finds an offer from a credit card issuer that includes 0% (or very low) interest for a fixed period of time.
The reason that a balance transfer is attractive to credit card holders is that it allows them to save considerably on their interest payments. In other words, while the actual outstanding debt does not change, the individual is able to reduce (or completely remove) the total interest payments that they make over the offer period.
Depending on the total outstanding debt that an individual has with a credit card issuer, the savings that they can obtain can be considerable. And, if the individual is focused on reducing their overall debt burden, they can then choose to take the payment that they would have made on interest and contribute it towards reducing the principal amount instead. As a result, they could save on interest while also reducing their debt significantly more than they would have if they continued with their original credit card issuer.
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How Does a Balance Transfer Work?
A balance transfer works by initiating a move of the outstanding debt from a current credit card provider to a new credit card provider. To start the process, the individual will need to contact the credit card provider that they have chosen and ask that they start the process. The credit card provider will require your information so it’s important to understand what a billing address is.
Credit Card Balance Transfer
Credit card balance transfer is one of the most common forms available. In fact, most countries have similar offers for individuals looking to transfer the outstanding debt from one credit card to a new platform. However, credit card transfers are not the only type of transfer available.
Bank Account Balance Transfer
Bank account balance transfers are also possible. In comparison to credit card transfers, transferring a bank account does not involve the process of transferring outstanding debt. Instead, transferring bank accounts typically involves the process of transferring direct debits, standing orders, and regular deposits, along with any funds held in the account.
Is There a Balance Transfer Fee?
Yes, there is typically a balance transfer fee when initiating the process. This fee will vary depending on the card provider that you use. So, if you are considering transferring from your credit card to a new issuer, you must review the fees that you may be charged first.
Balance Transfer Fees on Credit Cards
The balance transfer fees charged by credit card companies are not immediately paid by the credit card holder. Instead, it is added to the balance of the new card that the individual receives at the new credit card issuer.
Account Balance Transfer Fee
However, in most cases, it can range between 1.5% and 3.5% of the total outstanding balance that is being transferred to the new credit card provider.
Do Balance Transfers Hurt Your Credit Score?
Yes, balance transfers hurt your credit score in the immediate term because they require the new credit card issuer to run a “hard credit check” on your credit card profile. Additionally, the process of a credit card transfer also involves more debt being added to your outstanding debt, which can impact credit utilization and therefore credit score overall. That said, if a transfer allows you to reduce your debt sooner then you will be able to benefit in the long term from a credit card transfer overall.
Can You Use Credit Cards to Pay Off Another Credit Card?
No, banks do not allow you to use credit cards to pay off another credit card. Instead, they only allow you to initiate a credit card balance transfer. This is similar in the sense that you accumulate all of your debt under one card.
Frequently Asked Questions
Below are three of the most common questions that we receive from people looking into what a balance transfer is. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
How Do Balance Transfer Cards Work?
Balance transfer cards work by allowing an individual to move the outstanding debt that they hold on one credit card and place it on a new credit card. Individuals typically consider doing this because it allows them to access favorable interest rates for an initial period of time, which can help them increase the principal that they pay down or simply save on interest payments.
What Does Transferring a Balance Mean?
Transferring a balance means that an individual has found a credit card that offers specific benefits for individuals that will move their outstanding debt from existing credit cards to a credit card that they offer.
Is It a Good Idea to Balance Transfer?
Yes, a transfer can be a good idea if you approach it correctly and make a decision that aligns with your objectives. In other words, in order for a transfer to be suitable, you need to find a card that has an attractive offer and will allow you to pay down your principal faster, remove interest payments for a long period of time, or capture other benefits that you are interested in.
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