What is Credit Card Balance Transfer?

Interest SavingsIn some situations, balance transfers could save you money. Let’s say you owe $5,000 on a credit card that carries a 20 percent interest rate. Over the course of a year, you’ll rack up interest charges of $1,000! And if you don’t pay down the balance, the actual amount may even be higher because you’ll be paying interest upon interest.

A balance transfer helps you avoid this situation, and many credit card companies offer promotional balance transfer rates of zero percent. Just make sure you understand the card’s terms — for instance, the new card could offer a promotional rate that increases after the promotional period ends. Make sure you don’t end up with a higher payment if you can’t pay off your balance in time.

Balance Transfer Fees
Although there are often no interest charges involved, you’ll probably have to pay some type of fee for a credit card balance transfer, typically ranging from 3 to 5 percent of the amount transferred. If you transfer a $50,000 balance, you’ll likely have to pay a fee of between $1,500 and $2,500.

The duration of a promotional balance transfer rate is also limited. A credit card company will usually offer a reduced balance transfer rate for six to 12 months. But you’ll begin accruing interest charges again if you still have a balance at the end of that time, so be sure to pay off your balance before then.


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