Balance transfers can help you save money by lowering your interest rate, but it’s important to read the small print.

The Top Line

  • Credit card and consumer debt is a type of debt that affects millions of people around the world.
  • Balance transfers can be handy tools, but you should make sure that you understand them beforehand.
  • Balance transfers allow you to transfer credit card debt from one creditor to another.
  • There are some benefits to this, such as improving your interest rates in some situations.
  • Our guide will help you learn the basics of balance transfers and identify some situations in which they might be a good idea for you.

One of the most common financial problems that people have is high amounts of consumer debt. This type of debt can not only make it difficult to spend money responsibly but also can last for years, due to the high amount of interest that is typically accrued with the debt. Consumer and credit card debt comes with interest rates that often top 20%. This means that even minimum payments on these balances are not going to make much progress very quickly.

If you have high amounts of credit card debt, then you need to know that there are things that you can do to make it easier to pay back that debt. One such option is called a “balance transfer”. The concept of a balance transfer is to transfer the balance of your card from one card to another. You might be wondering how that could help. Well, as it turns out, there are plenty of benefits that come along with performing a balance transfer.

In this guide, we are going to introduce you to balance transfers and show you the benefits that can be enjoyed when you choose a balance transfer to make your credit card debt more manageable.

How Does a Balance Transfer Work?

Before we get into how to do a balance transfer for your credit card debt, you have to understand the mechanics of a balance transfer. True to its name, a balance transfer occurs when you authorize the transfer of debt from one credit card to another. You might look at this as paying one credit card with another credit card. To most, this could seem nonsensical. However, there are plenty of reasons that you may be looking to pay one credit card with another. The primary reason for most balance transfers is to decrease the interest rate you’re paying, which can result in some substantial savings.

Ways to Request a Balance Transfer

If you want to do a balance transfer, there are three basic ways to do so. The first is that you can request a balance transfer online. Typically, all you have to do is log in to your online credit card account. Within this dashboard, you should be able to request a balance transfer.

You may also receive balance transfer checks from the balance transfer credit card. You would write the check to the bank where you want to transfer the balance from.

However, there are circumstances that you want to talk with a person to conduct your balance transfer. This is perfectly understandable. If you so choose, you can also call your credit card provider to conduct your balance transfer. If you choose this route, you will have to provide them with all the necessary details that they need to complete the transfer. This can take some time but is preferable for those that like to talk to a person.

When to Consider a Balance Transfer

Many people are probably wondering why they would want to transfer credit card debt from one credit card to another. This would seem to be a sideways move, to most. However, many people do it every year. So, what are the exact reasons that people have for initiating a balance transfer? Read along and find out about some of the circumstances in which it would pay off to do a balance transfer from one credit card to another.

High-Interest Rates

One of the most common reasons that people do a balance transfer is because they are currently facing high interest rates. This can be incredibly harmful for your personal finance. If you want to avoid having to pay high interest rates on the debt for your credit card, then you might consider switching the debt over to a credit card that has a lower interest rate.

This simple move could help you on your path to paying off your credit card debt. If you have better credit than what you had before you took out the first credit card, you could gain access to a card with much better rates.

Multiple Payments

If you have several credit cards open, each with a balance, then you know the pain of making credit card payments on several cards at once. This can often be very time consuming and difficult, especially for those that don’t make a large income. If you want to make your payments more manageable and easier, then one of the best things that you can do is a balance transfer.

If consolidating payments is your reason for a balance transfer, it would mean that you would transfer each of the existing cards into the new card. This would put your entire credit card debt on one credit card. Instead of having to figure out how to pay multiple bills each month, you would be faced with only one bill. This could make your financial life much easier to manage and free up cash flow, especially if you are able to get a better interest rate as a result.

Promotional Offers

Another reason to transfer your balance from one credit card to another is if you gain access to a card that has a promotional 0 percent interest rate for a period of time, typically six to 18 months. That would mean that you could transfer the debt from your other cards to a new one. While you pay off the new credit card, you wouldn’t be paying interest. However, if you are going to use this maneuver, you must make sure that you commit to paying off the new card as soon as possible and avoiding leaving a balance on it past the promotional period. This could defeat the purpose of the transfer, should you neglect to pay off the new card completely.

Some Words of Caution

As you are considering a balance transfer credit card, pay attention to the details such as fees, interest rate, how long you have to make a transfer, and how long the introductory rate will last. Also, if you have a balance that is larger than the amount that you are allowed to transfer, focus on the balances that have the highest interest rates first.

It can save you a lot of money to transfer a balance from a market rate interest rate to one with an introductory 0 percent interest rate. But keep in mind that you must make on-time payments on the balance transfer credit card or you will lose the promotional rate and may have to pay a penalty rate.

Before you conduct a balance transfer, do the math to see if the move will save you money. Calculate how much interest you would pay with your existing card and how much you would pay with the new one.